Can we get globalization right? It has emerged as an all-purpose scapegoat for our economic woes — lost jobs, depressed wages, large trade deficits, greater income inequality, anxieties about the future. The reality is otherwise: Although globalization is genuine, it has been distorted and its ills exaggerated. I have written about this before, but because the issue is so central to the campaign debate, it’s worth revisiting.
There can be no doubt that globalization has been cast as an economic villain. Donald Trump recently gave a major address on the economy. It was almost exclusively devoted to the alleged evils of globalization. Here’s a sample:
“Our politicians have aggressively pursued a policy of globalization — moving our jobs, our wealth and our factories to Mexico and overseas. Globalization has made the financial elite who donate to politicians very, very wealthy. . . . But it has left millions of our workers with nothing but poverty and heartache.”
Hillary Clinton has been playing catch-up — first to respond to Sen. Bernie Sanders (I-Vt.) and now to Trump -- and has moved to distance herself from past support for trade agreements, including those championed by President Bill Clinton. Now, Clinton says she’s opposed to the Trans-Pacific Partnership, President Obama’s signature trade deal, which still awaits congressional approval.
The implication — from Trump, Sanders and Clinton — is that globalization is at the root of our economic problems. Fix it, and everything will be okay.
What’s lost in the obsession with globalization is the fact that the American economy is driven mainly by domestic factors. In 2015, U.S. trade dependence — imports and exports as a share of GDP — was 28 percent, according to the World Bank. Roughly three-quarters of the economy is domestic. Many other countries have a much higher trade dependence. Germany’s trade was 86 percent of GDP; the average for all members of the Organization for Economic Cooperation and Development was 56 percent.
Here’s another way of making the same point. Suppose hypothetically that the U.S. economy was completely self-sufficient. It had no imports or exports; everything we consumed we produced. The 2008-09 financial crisis would still have occurred, because it was caused mainly by domestic forces — a housing bubble fostered by lax credit standards and inaccurate or fraudulent loan applications.
The economic issues that we ought to be debating in this campaign (but are not) relate mostly to domestic weaknesses: lackluster corporate investment in new plants and equipment; the slowdown in new business start-ups; the collapse of productivity growth (a.k.a. greater efficiency); and large federal budget deficits.
It’s true, as Trump and others have argued, that we consistently have sizable trade deficits, $500 billion in 2015. (Imports were $2.8 trillion, exports $2.3 trillion.) But if we slapped stiff tariffs onto imports as Trump suggests, it’s doubtful that we’d create many — or, possibly, any — new jobs. Other countries would probably retaliate by imposing high tariffs on U.S. exports. Export-related employment would suffer.
Moreover, Trump wrongly blames U.S. trade deficits on trade agreements, which (he alleges) were negotiated by inept trade officials. The main cause, as I’ve explained before, is the dollar’s role as the main form of international money, which is used to finance trade and international investment. This boosts the worldwide demand for dollars, raising the exchange rate and making U.S. manufactured goods and farm products less competitive on global markets.
The interconnections that bind countries together — globalization — are much more complex than Trump and, to be fair, many others imagine. The huge flows of money between countries rival in importance the massive flows of goods and services. The best thing we can do to improve the United States’ international competitiveness is to strengthen our domestic economy, which is the ultimate foundation on which its global dynamism rests.
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