Monday may have been the lowest point in U.S. trade history since the Smoot-Hawley tariff bill that worsened the Great Depression. Bloomberg reports:
With the stroke of a pen, President Donald Trump abruptly ended the decades-old U.S. tilt toward free trade by acting to withdraw from an Asia-Pacific accord that had been promoted by companies including Nike Inc. and Wal-Mart Stores Inc. as well as family farmers and ranchers.
“Great thing for the American worker, what we just did,” Trump said on Monday after signing a memorandum directing the U.S. Trade Representative to withdraw the U.S. as a signatory to the Trans-Pacific Partnership accord with 11 other nations. He left the North American Free Trade Agreement with Mexico and Canada untouched for now, but an aide, who spoke on condition of anonymity, said action on that accord is still in the works.
The National Taxpayers Union blasted the moves. “There is no doubt that the Trans-Pacific Partnership contains flaws; however, the Trump administration would best serve our nation’s interests by directly addressing these problems rather than completely withdrawing from the agreement,” NTU’s executive director Brandon Arnold said in a written statement. “TPP has the potential to lower the cost of consumer goods, increase the productivity of American manufacturers, and open up new international markets for U.S. products and services.” He wants Trump to “re-engage in TPP negotiations” and on NAFTA “strive to update and modernize the agreement in a manner that reduces the taxes and burdens that impede international commerce.”
Reflecting the degree to which Trump has terrified the business community, the Business Roundtable (a purported pro-market group that represents large businesses) released a statement that attempts to state its position as meekly as possible and avoid the Trump wrath: “We are encouraged by the Administration’s commitment to pursue trade agreements. Business leaders see common ground on advancing key U.S. trade objectives such as opening international markets for American goods and services and developing strong and enforceable trade rules.”
The group hardly objected to withdrawing from the TPP, in fact avoided even mentioning it by name. (“The Asia-Pacific region is one of the world’s most dynamic markets. Not only is there great potential to support U.S. growth and jobs through trade in this region, but also the opportunity to set enforceable rules needed to level the playing field for our country.”) On NAFTA, all the Business Roundtable could muster were platitudes: “Business leaders welcome the opportunity to work with the Administration and Congress to modernize and strengthen NAFTA, creating even more benefits for U.S. businesses and workers.”
With such wimpy support for free trade no wonder Trump faces no resistance to his economically illiterate and potentially disastrous plunge into protectionism. (He says he prefers bilateral trade deals, but why are those inherently better than multi-party deals?) Politicians of both parties have run for cover rather than explain the benefits of trade and better respond to displaced workers.
Meanwhile, the president who came into office saying, “We don’t win anymore,” by repudiating a trade alliance with democratic allies that would have left China outside looking in, winds up giving China a big win. “A retreat from the TPP now gives Beijing, which has been negotiating its own trade blocs, a chance to fill a void,” The Post reports. “Since Trump’s election, the Philippines, Singapore and Malaysia have shifted toward China’s proposed Regional Comprehensive Economic Partnership, which would also reduce tariffs — without many of the standards put in place by Obama’s plan — and redirect Asian trade China’s way. Other nations in the region are likely to follow suit.”
The descent into protectionism and loss of markets and allies do not have to be the new normal. The public might actually be receptive to an honest discussion. A new PRRI poll reports:
Forty-three percent of the public say free trade agreements are mostly helpful because they open markets to U.S. companies and allow Americans to buy goods more cheaply. Half (50 percent) of Americans take an opposing stance: Free trade agreements are mostly harmful because they send jobs overseas and drive down wages in the U.S.
There are modest differences in views about free trade by race and ethnicity—but white Americans are divided sharply by class. Six in ten (60 percent) white working-class Americans say free trade agreements are mostly harmful, a view shared by only 42 percent of white college-educated Americans.
There is the Clinton/Trump divide in a nutshell. Moreover, Democrats are more supportive of free trade than Republicans, confirming the latter rather than conservatives is now a strongly populist party. (“Nearly two-thirds (64 percent) of Republicans believe free trade is generally harmful. In contrast, only 40 percent of Democrats see free trade agreements as mostly harmful, while 54 percent say free trade agreements are mostly helpful because they open markets and lower the price of goods.”)
As a factual matter we know that most of the aggrieved Trump voters’ problems stem not from trade but from automation. One study from Ball State University finds: “Almost 88% of job losses in manufacturing in recent years can be attributable to productivity growth . . . and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories.” Not even Trump would suggest we slow productivity gains or stop automation; indeed we want to increase productivity, which is the basis for wage growth for American workers.
As American Enterprise Institute’s Mark J. Perry observes, “Actually, it’s been capital investments in labor-saving technologies like robotics and increasing worker productivity that have led to the large majority of US factory job losses, not trade or outsourcing . . . And there’s been no devastation of America’s manufacturing base; to the contrary, real US manufacturing output has reached all-time high levels in recent quarters.” Perry observes that Trump finds it easy to find support for protectionism. “The appeal is clear and understandable: protectionism does save and protect some American jobs in protected industries, and those jobs are easily visible, identifiable, and measurable; in fact, they provide wonderful photo opportunities and hand-shaking opportunities for protectionist presidents and politicians.” But, he notes, we don’t hear about American consumers. “Economic analysis and the empirical evidence presented above suggest that it’s very, very expensive to save US jobs with protectionism — more than half-a-million dollars on average per year per job in 2016 dollars,” says Perry. “If Trump enacts protectionist policies that save $50,000 per year US factory jobs but at a cost to consumer of $500,000 annually for each job saved, that’s a surefire formula to ‘Make America Expensive and Poor Again,’ not ‘great again.'”
The other people we don’t hear enough about — employees, small business owners and our own manufacturing base (which needs open markets to sell their goods and needs to import supplies) need to have their voices heard as well.
Consumers, workers, businesses, libertarians, free-marketeers and proponents of “soft power” who understand the benefits of free trade better start explaining what we gain from it and what caused job losses. Government and businesses must consider more intensive measures to assist those displaced and the cities “left behind,” so as to reduce anti-trade furor. This won’t be easy after years of irresponsible rhetoric from both sides; the downside risks of a new era of protectionism are great. China is already capitalizing on our foolishness. Before we lose markets entirely we need to stop advancing counterproductive strategies our of fear of the economically ill-informed mob and the demagogues. Then we can get on with policies (tax and regulatory reform, worker training, higher ed options) that might do some good.