Expanded trade with China over the past 15 years has cost the United States at least 2 million jobs. Cracking down on trade with China by taxing the cheap consumer goods it ships to our store shelves could cost millions of additional jobs. That both of these things can be true is the conundrum of trade, the breakout issue of the 2016 presidential election.
Democrats have long debated globalization and its consequences in their primary campaigns, particularly in the Rust Belt, a tradition Bernie Sanders and Hillary Clinton are continuing. But Republicans, led by Donald Trump, are suddenly bashing trade, too. On both sides, the issue has become a leading scapegoat for lost jobs and stagnating working-class wages, and rejiggering "bad" deals has become a common promise to restore middle-class prosperity. Many of the campaign promises, though, rest on myths, some of them egregious.
"When was the last time anybody saw us beating, let's say, China in a trade deal?" Trump asked in his campaign launch last summer, using a line he repeats in some form in nearly every public appearance. "They kill us." Conservative commentator Pat Buchanan wrote this year that "to understand why Detroit [looks] as it does, while the desolate Shanghai Richard Nixon visited in '72 is the great and gleaming metropolis of 2016, look to our trade deficits."
The United States has increased trade with China over the past two decades, and that increase has cost more than 2 million U.S. jobs, according to calculations by a team of economists led by MIT's David Autor. There is a lot of evidence that the Chinese have manipulated
their currency over much of that period, effectively making it easier for Americans to buy their products and harder for Chinese consumers to buy American products, thus artificially inflating the U.S. trade deficit. It's worth noting that in the past year, China has allowed its currency to rise in value against the dollar.
Still, the United States does not have a trade agreement with China, neither a bilateral or a multilateral deal, much less a good one or a bad one. The two countries trade on baseline terms set by the World Trade Organization; Trump has long criticized America's decision under President Bill Clinton to agree to China's entry to the WTO. If the next president wants to change those terms, he or she would need to enact change at the WTO (nearly impossible, in the short term), negotiate an agreement directly with the Chinese (not remotely on the table), or pressure China through other means, such as officially declaring it a currency manipulator (theoretically possible and relatively simple procedurally). But when Trump says he would "immediately start renegotiating" America's trade deal with China, he's talking about something that doesn't exist.
In a Michael Crichtonesque throwback to the 1980s, Trump loves to toss Japan into his triad of great trade villains, along with China and Mexico, especially in terms of automobiles. "You look at Japan," Trump told the Washington Post. "They send their cars in here by the hundreds of thousands. You go to Los Angeles, you look at those docks, and these cars get driven off those boats at 40 miles an hour. You've never seen anything like it. They just come pouring into our country."
That's a widely held view in former auto manufacturing strongholds such as Michigan, where Japanese cars are still hard to find. Such places have suffered "from car buyers' turn away from patriotic consumerism," author Edward McClelland argued in the Post last year.
But while it's true that Japan exports cars to the United States, it doesn't do that nearly as much as it used to, even though Toyotas, Hondas and Nissans dot the list of best-selling automobiles. Today, many Japanese brands build vehicles in the United States, more than twice as many autos as those shipped from Japan into U.S. ports. In the mid-'80s, America imported 3.5 million cars from Japanese factories every year. By 2013, those imports were down by 50 percent.
Trump's economic plan boils down to cutting taxes and renegotiating trade deals, including the nonexistent China agreement. He told the Post he could generate revenue to pay off $19 trillion in federal debt within eight years, without raising taxes. "The power is trade," Trump said. "Our deals are so bad." Sanders suggests the same thing in calling for his own protectionist policies: "We should have a trade policy which represents the working families of this country, that rebuilds our manufacturing base." As leverage to cut better deals, Trump has threatened tariffs on China and Mexico. Sanders has also raised the threat of tariffs.
Economic models don't generally predict that such ideas would rev up the U.S. economy, though. Quite the opposite. A model by Moody's Analytics, prepared at the request of the Post, predicts that Trump-style tariffs would push our economy into recession and throw millions of Americans out of work. A more optimistic model, from economist J.W. Mason of the Roosevelt Institute, estimates that tariffs would probably reduce America's gross domestic product by about 1 percent--not a huge effect, but also not the growth boom that opponents of free trade predict.
This is an explicit Trump promise, which blue-collar workers would love to come true. He's not the only candidate who believes this: "I'm going to stand up for fair trade," Sen. Ted Cruz (R-Texas) said in an ad he aired before the Wisconsin primary, "and bring our jobs back from China."
But that argument rests on two dicey assumptions: that companies would move production back to the United States in the event of a trade war and that the "re-shored" production would create as many new jobs as were lost to begin with. Many economists doubt that companies would move much factory work back from China. They wouldn't be certain how long tariffs might last, for example, and wouldn't want to be stuck with higher U.S. production costs if trade flows picked up again under a future president. They're more likely, Moody's economist Mark Zandi says, to move factories to Vietnam, Cambodia or other developing nations, unless America is set to restrict trade with all those countries, too. And in any country, the trend in manufacturing is toward automation of production: Factory output has risen much faster in this recovery than employment has.
That's the conclusion you might draw as economists and business leaders continue to insist that some lost jobs are an acceptable price to pay for the faster economic growth and cheaper consumer goods that trade brings to the country. "If we are not engaged in the global economy, we will lose more jobs," Julie Granger, the senior vice president of the Metropolitan Milwaukee Association of Commerce, told McClatchy. "There's no going back."
But that's myopic, too. An emerging consensus among trade-focused economists is that the United States needs to do a lot more to compensate the workers displaced by increased trade, through much more aggressive retraining or direct government subsidies to affected workers.
What those workers really need are new good-paying jobs. Oddly enough, expanded trade of a different sort could help foster the creation of those jobs. As the liberal economist Dean Baker frequently argues, large swaths of U.S. workers remain mostly shielded from foreign competition, thanks to various licensing requirements to work in their fields here. Those include many high-paid professionals, such as doctors and pharmaceutical executives.
Allowing more foreign-born professionals to compete with native-born Americans in those fields, Baker contends, would push salaries down for some of our highest-paid workers, and prices would fall for consumers. Income inequality would shrink, the average worker would have more money to spend, and the economy might run more efficiently. And perhaps more middle-class jobs really would rush into the economy--at Trump's 40 miles per hour or otherwise.
Editorial on 04/24/2016