The Kochs Funded Third Way to Push Free Trade to Democrats, New Book Says

In the fall of 2007, the tide was beginning to turn against free trade, as the ongoing hollowing out of the American middle class was becoming associated with globalization and the offshoring of jobs. Its leading public opponent was the bombastic CNN anchor Lou Dobbs, a proto-Trump whose economic nationalism curdled easily into racism and nativism. Many Democrats, too, were turning sour on free trade. Then-President George W. Bush relied on Republican votes to ram through the Central American Free Trade Agreement in 2005, but future deals were looking far from certain, particularly after Democrats seized control of Congress in the 2006 midterms.

This was a direct threat to Koch Industries, the sprawling business empire long led by billionaire brothers Charles and David Koch. The fossil-fuel giant’s business has long been based on importing oil from Canadian tar sands, which it refines at its massive Pine Bend plant in Minnesota — and the opposition to free trade threatened to make that business much more costly. The Kochs desperately needed help with Democrats, so they turned to a reliable partner: Third Way.

According to the new book “Kochland,” written by investigative reporter Christopher Leonard, Koch Industries secretly financed a report by Third Way, a corporate-funded think tank with ties to the centrist wing of the Democratic Party. The report, titled “Why Lou Dobbs is Winning” and published in November 2007, was written to promote the free trade agenda to liberals. The white paper explained it would be the first salvo in a yearlong effort to reshape the messaging around trade policy, warning that “a new and powerful populist strain has emerged on both the left and the right of American politics that threatens to turn the nation fearful and inward.”

While Third Way’s report did not note any funding from Koch Industries or any related companies or organizations, it did offer thanks to Rob Hall, then a lobbyist for Koch Industries’ Invista division, “for his support in helping us conceive of and design Third Way’s trade project,” adding credence to Leonard’s claim that the Kochs were behind the effort. Hall was previously a Koch executive. The report also added: “The authors offer their sincerest thanks to Third Way’s Board of Trustees for their continuing intellectual support of Third Way and in particular for providing several of the key initial insights on which this paper is built.” Third Way’s board of trustees is a who’s who of Wall Street and corporate elites.

It may seem odd to see the Koch brothers, who operate today as partisan Republicans, aligning with business-friendly Democrats, but the strategy dates back further. (After publication, Nicholas Gass, a Koch spokesperson, noted that David Koch has stepped away from advocacy and that the Koch strategy is less partisan in its focus than previously.)

A 2001 American Prospect investigation noted that Koch Industries was a member of the executive council of the Democratic Leadership Council, founded in 1985 by centrist Democrats to combat the left inside the party. Hall, thanked in the report, was a member of the DLC’s event committee at the time.

The paper argues that “neopopulists” like Dobbs were on the rise because Americans didn’t have faith in arguments made by free traders. Polls showed that people believed that “open trade,” as Third Way dubbed it, cost jobs, only benefited major corporations, made the U.S. weaker globally, and that trade barriers and tariffs were good policies that protected jobs. The argument on behalf of free trade, the report said, hadn’t taken into account the struggles of the middle class. “Our policies” — in favor of free trade — “do nothing to restore middle-class confidence in the future,” the report noted correctly. “Middle-class economic anxiety is widespread and legitimate. And fairly or not, much of the blame for this anxiety is landing squarely on trade.”

Of course, as Leonard notes in his book, there is good reason for public skepticism about free trade deals. “Such trade policies were under attack in 2007 because they did not deliver the economic benefits that they had promised to huge swaths of the American population,” he writes. “The textile industry of South Carolina, for example, was decimated by trade agreements, such as NAFTA,” the North American Free Trade Agreement.

The Third Way report was rolled out in coordination with then-Rep. Joe Crowley, a Democrat representing the Bronx and Queens, and then-Rep. Melissa Bean of Chicago. Both were leading figures in the party’s pro-business wing. “We all have to begin to speak differently about trade, how it benefits the economy and foreign policy, how it helps Americans and people abroad,” Crowley said in a 2007 Politico article.

The report, which was part of a broader push by Third Way and others to sell free trade policies to Democratic politicians, laid out a series of prescriptions to reframe the debate, and not a moment too soon. The global economic crisis that struck in 2008, which was met with austerity policies around the world, took whatever fuel there was behind the populist movement and lit it on fire.

The Obama administration embraced free trade, making the enactment of the 12-nation Trans-Pacific Partnership a cornerstone of its global trade policy that was widely opposed on the left and right. Donald Trump made opposition to free trade a central component of his campaign and rode to the White House over the objections of the Koch brothers. He immediately pulled out of the TPP negotiations and has made opposition to free trade a central component of his presidency. The leading progressive Democratic candidates for president, Sens. Elizabeth Warren and Bernie Sanders, both opposed the free trade agreement.

After losing a primary to Rep. Alexandria Ocasio-Cortez, Crowley is now employed by a lobbying firm and working to pass Trump’s renegotiated NAFTA. Bean recently left JPMorgan Chase to become CEO of Mesirow Wealth Advisors.

Third Way has consistently warned against the rise of populism on the left. In 2013, the group attacked Warren, warning she would take the party off a “populist cliff.” Third Way now claims to have come to terms with Warren and contends there’s a greater threat from Sanders’ brand of democratic socialism.

This story was produced in partnership between The Intercept and MapLight.

Update, August 13, 12:49 p.m.:
This article was updated to include comment from Koch spokesperson Nicholas Gass.