Of all the technical flaws in the badly broken international trade system, the one most intuitive to the layman is the race to the bottom on labor. In the global free market, multinational corporations have a strong incentive to set up shop not where labor is most productive but where it has the least power and can be most easily exploited. For nations eager to attract investment, selling out their own workers is a sure path to success, and sometimes a necessary one.
“For nations eager to attract investment, selling out their own workers is a sure path to success.”
Corporations, of course, were thrilled with this model. Jack Welch, the longtime CEO at General Electric, famously remarked that “ideally, you’d have every plant you own on a barge” able to sail from port to port, pitting the workers at each against one another. Cheap labor drove rising profits and stock prices, and, to quote Club for Growth founder Stephen Moore, “Cheap labor leads to a booming stock market? That benefits everyone.” Except, obviously, the workers, their families and communities, and ultimately any nations that attempt to do right by them.
Since he announced sweeping tariffs on Liberation Day in April, President Trump has been leveraging access to the US market to reset the terms of international trade, seeking to reduce America’s chronic trade deficits and induce investment to recapitalize its atrophied industrial base. However, he should also use the reset to address the structural conditions that have long undermined American workers.
While American politicians have always promised that trade agreements would protect workers and create better jobs, they did nothing to stop the race to the bottom. On the contrary, they enabled it. A case in point is the North American Free Trade Agreement (NAFTA), which relegated labor provisions to a side agreement with no meaningful enforcement mechanisms. The agreement encouraged “consultation,” rather than corrective action, doing little to ensure that Mexican workers could organize and bargain collectively in the same way as their American counterparts. Robert Lighthizer, President Trump’s first-term trade representative, rightly called NAFTA’s labor agreement a “fig leaf” that did nothing to help Mexican workers form genuine unions.
Deeply entrenched corruption had long characterized Mexico’s labor regime, with unions operating as extensions of state and business interests rather than as independent representatives of workers. Dominant unions maintained control through employer-dominated arbitration boards. They systematically suppressed democratic participation, denying workers the right to vote on union leadership and collective bargaining agreements. Workers were often required to sign “protection contracts”—agreements that ensured automatic dues while locking workers into perfunctory representation with little power to improve wages and conditions.
Under these circumstances, “free trade” between Mexico and the United States meant that anti-worker labor policy on one side of the border harmed workers on the other side as well. American workers retained the same de jure labor rights as before, but their ability to vindicate those rights was eviscerated by millions of new workers lacking such rights with whom they were expected to compete. Many American workers lost their jobs. Those who didn’t lost negotiating leverage with their employers and suffered lower wages and fewer benefits.
The United States-Mexico-Canada Agreement (USMCA), negotiated by Lighthizer during Trump’s first term to replace NAFTA, was designed to eliminate that distortion. The labor chapter requires all parties subject to the agreement to adopt and maintain core labor rights recognized by the International Labor Organization, in law and in practice: freedom of association, the right to collective bargaining, and the elimination of forced and child labor.
These provisions are enforceable through a Rapid Response Labor Mechanism (RRM), which allows the United States to review and remediate labor violations at specific Mexican facilities. If violations are confirmed and unresolved, it has the authority to suspend USMCA tariff benefits or deny entry of goods into the US market altogether—a credible deterrent to induce compliance. The RRM can resolve cases in as little as 120 days.
This enforcement model has been effective. Mexico, in compliance with USMCA, enacted labor reforms that enhanced union transparency and promoted union democracy. Since 2021, the United States has requested 37 reviews under the RRM at Mexican facilities across industries. In many cases, remedies enabled workers to elect new unions, renegotiate collective bargaining agreements, be reinstated after wrongful termination, and receive back pay.
With its newfound leverage, the United States should expand this approach, particularly in regions such as Latin America and Southeast Asia, where labor standards are weak and labor rights violations are widespread. Trading partners that want access to the US market must ensure their workers have the right to organize and collectively bargain with their employers. Although there are many ways lawmakers can reform US labor law to better serve American workers, international trade must not force them to compete against those who do not enjoy the same rights they do.
The administration is moving in this direction. On July 22, it released a reciprocal trade framework with Indonesia. The framework includes language resembling USMCA’s labor chapter: a prohibition on the importation of goods made with forced labor, commitments to protect freedom of association and collective bargaining, and measures to strengthen labor law enforcement.
Labor standards should be foundational to trade agreements, not symbolic gestures. But even the strongest standards on paper mean little without the capacity to enforce them. An ambitious trade policy that seeks to advance the interests of American workers must be supported by a corresponding investment in the agencies responsible for monitoring compliance, investigating complaints, and taking enforcement action when necessary. That requires Congress to equip the Office of the US Trade Representative and the Departments of Labor and State with more resources and staffing. Without bolstering administrative capacity, the promise of labor protections will fall short of what American workers deserve.
How will free trade work if firms cannot search abroad for cheaper labor? The way it was always intended to, with trade occurring because nations benefit from having their workers specialize in areas where they can be most productive. It should be for the benefit of our citizens, not multinational corporations, that we trade at all.