I woke up this morning and read two things. The first was this Michael McFaul tweet:
It’s pretty hard to resist the request of a former professor of yours. Especially when he has a blue check mark.
Also, I see my PostEverything colleague Jared Bernstein has an op-ed in the New York Times on trade today. Bernstein argues that it might truly be the end of an era with respect to U.S. free-trade agreements. After all, the leading candidates on both sides of the aisle are showing genuine bipartisanship in railing against the Trans-Pacific Partnership. But Bernstein argues that this is a good thing:
That said, the absence of new F.T.A.s is an opportunity to refocus our trade policy on workers and more balanced trade. Besides the loss of public trust, cramped F.T.A. negotiations have blocked us from taking necessary steps against currency manipulation and have diminished our focus on policies that could rebuild the manufacturing sector.
At this point in the argument, chin-stroking pundits will tell you the “hard truth” that those manufacturing jobs we lost are not coming back. They’re right, but that’s beside the point. The question is not whether we can go backward, but could there be a more vibrant manufacturing future here? Can we, for example, build supply chains such that we don’t just design the new goods the world demands, but instead of outsourcing their production, produce them here?
Before I respond to Bernstein’s argument, do please remember that he acknowledged that me and mine are right about that whole disappearing manufacturing jobs thing. For example, Bernstein talks about creating a “more vibrant manufacturing future” in the United States, you’d think that the United States doesn’t manufacture anything anymore. Except:
The problem isn’t that the United States doesn’t have a vibrant manufacturing sector. The problem is that sector does not generate the job numbers that used to be associated with manufacturing:
Now, as to Bernstein’s larger point, I can’t stop shaking the feeling that his op-ed — like a lot of rhetoric pointing to the darker forces of globalization — are focusing on the global economy circa 2006 as opposed to 2016. And a lot has happened in the past 10 years.
Again, let me stipulate that there is decent evidence that, say, permanent normal trading relations with China proved to be pretty devastating to American manufacturing workers. But as Bloomberg View’s Noah Smith has pointed out, that effect has pretty much come to an end.
China was probably a special case because of its undervalued exchange rate, heavy government promotion of exports, very low income and enormous size. It presented U.S. workers with a challenge unlike any they faced from Japan, Europe or even Southeast Asia.
But that challenge is over, for the most part. China’s growth has slowed, its trade has flatlined, its wages have skyrocketed and its currency is now overvalued instead of undervalued. All the manufacturing and supply chains that could relocate to China have already done so, and now some are even returning to the U.S.
To be fair, in 2016 we still see China massively intervening into foreign exchange markets to manipulate its currency. The thing is, in contrast to a decade ago, those interventions are designed to prop up a sagging yuan. I suspect that neither Bernstein nor Donald Trump (if he were to ever update his economic worldview) would oppose this kind of currency manipulation.
As for rejiggering global supply chains so that more production is in the United States, it would appear that this is already happening. The Boston Consulting Group has been hammering this point home for years now, noting that even the rising dollar has not undercut U.S. productivity in manufacturing. And earlier this month the McKinsey Global Institute released a report showing global flows as a percentage of output have fallen from 53 percent in 2007 to 39 percent in 2014. Why? It’s not due to rising levels of protecionism. Rather, it’s because “the cost of managing complex, lengthy supply chains” has caused a shift from global supply chains to more regional ones. This analysis is backed up by a VoxEU e-book on the global trade slowdown.
To be clear, I don’t mean to suggest that there shouldn’t be a vigorous policy debate about coping with the externalities of globalization. When conservatives start opining about the virtues of wage insurance as a response to import competition, you know the policy ground has shifted.
But if there’s going to be a proper policy debate on how to handle globalization, let’s make sure it’s up to date. When Republicans rage about immigration, for example, they’re relying on a snapshot from a decade ago when illegal immigration was pretty high. But the world has changed in the past decade. All of the data suggests that illegal immigration has slowed dramatically, the number of undocumented immigrants in the United States has declined, more Mexicans are exiting than entering the United States (which, by the way, is not great for parts of the U.S. economy). “The border is much more secure than in times past,” R. Gil Kerlikowske, commissioner of U.S. Customs and Border Protection, has said.
The GOP debate on immigration is a decade out of date. But the Democratic and Republican debate on globalization also feels as if its date of expiration was in 2006. And it would be nice if the thinking on this subject was a little less stale.