It’s been said that anyone believing in the afterlife should be barred from political office. While I have no insights on our president’s theological leanings, I do know that he has engaged in more wishful thinking regarding our nation’s problems than any president in memory. Whether it’s cheap health care, eliminating the national debt or vanquishing our enemies, it’s all going to be simple and beautiful. Perhaps this blithe approach to complex issues is at its most cruel and pernicious in international trade, where millions have been promised the return of jobs that have likely been made permanently redundant by technology and global competition.
Among the many “America First” promises made by Trump during the campaign was the pledge to revamp our country’s international trade relationships to get us “winning again.” Targets of his criticism included multilateral trade agreements such as NAFTA and the Trans-Pacific Partnership, “currency manipulators” such as China, and disloyal U.S. corporations that choose to invest in overseas manufacturing.
Now that President Trump is in a position to make good on some of these pledges, many worry that significant progress in integrating the world trading system, developing vital cross-border supply chains and global economic growth could be jeopardized. Among those now showing concern are many in the Democratic Party who for the sake of political expediency joined in on trashing international trade during the 2016 campaign. In doing so, they were unwitting enablers of Donald Trump and now will share ownership of the consequences of his reckless and isolationist trade policy.
Of the many surprises during the 2016 presidential campaign, the emergence of international trade policy as a hot-button issue certainly ranks high. With 20/20 hindsight, it now seems obvious that a Trump candidacy built around stoking fear and resentment among blue-collar voters would eventually invoke trade as a villain in the decline of middle class living standards. Less predictable perhaps was the extent to which Hillary Clinton and the Democratic establishment would climb aboard that train and begin attacking liberal economic theories that had been orthodox thinking within the party for at least three decades: that economic integration and open trading systems provide net benefits to economic growth and employment, and spur innovation and economic development at home and abroad.
Basic macroeconomic theory tells us that trade brings net benefits to both buying and selling countries — buying countries because of lower consumer prices and greater spending power — selling countries because of export-led growth and expanded employment. Expanded trade also fosters so-called “creative destruction” that drives economies to shed activities in which they are no longer competitive, and invent new ventures and products or reinvent existing processes based on new technology. While this helps spur growth and innovation, it also causes considerable pain among those displaced by changing markets and manufacturing methods.
International trade has always created winners and losers, yet advocates of international trade agreements have tended to oversell the benefits of these agreements and focus primarily on the macro benefits to the U.S. economy, which indeed have produced consistent though not spectacular net gains in employment and growth. But macroeconomic gains are experienced across an $18 trillion economy, while job losses are felt in specific local areas that may see significant social and employment disruption. In other words, the effects of expanded trade tend to be unbalanced, with gains broadly diffused across the economy and losses felt acutely at the local level.
In the campaign, the Democrats did no better than the Republicans in honoring the core beliefs of their party. Hillary Clinton, who had once declared the TPP to be “the gold standard in trade agreements,” was driven to recant by Bernie Sanders’ unrelenting attacks on virtually all trade agreements. Those attacks, none of which was particularly elevated by the use of facts or fundamental economic principles, set the stage for a free-for-all scapegoating of international trade. When serving in the U.S. Senate, Clinton offered a clear-eyed endorsement of trade agreements by saying: “During my tenure as senator, I have voted for every trade agreement that has come before the Senate, and I believe that properly negotiated trade agreements can increase living standards and foster openness and economic development for all parties.” However, it wasn’t long before the Sanders and Trump campaigns converged on the trade issue and forced candidate Clinton to pivot toward protectionism.
As the campaign progressed, Democrats found themselves in a race to the bottom with Donald Trump, with each side abandoning widely accepted economic theory in favor of feeding false hopes to those more in need of well-funded job retraining, income support and relocation assistance. Existing programs to deliver these benefits, such as the Trade Adjustment Assistance Program, have historically been opposed by Republicans and given uneven support by Democrats. Other than a little noticed Clinton proposal for retraining coal miners, no serious debate occurred on expanding these programs or proposing new ideas for strengthening worker training.
Also lost in the bipartisan assault on trade agreements was any discussion of the benefits to developing countries from closer integration into the world trading system. Multilateral and bilateral trade agreements have raised global living standards, encouraged foreign investment and raised the bar on labor and environmental standards, all of which positively influence the U.S. economy. For example, as part of the TPP, Vietnam had agreed to allow the formation of independent labor unions, a remarkable about-face by a Communist regime intent on monopolizing organized labor. Hard-liners in Hanoi, who never supported opening up Vietnam’s economy to the sunlight of international labor standards, are surely celebrating the TPP’s demise.
Now that Democrats have joined hands with Donald Trump in his imaginary world of international trade, they have implicitly bought into his outright falsehoods. Chief among these is Trump’s imagined collapse of U.S. manufacturing. “We don’t make anything anymore” according to Trump, but the fact is that U.S. manufacturing is now at a 35-year high — on an inflation-adjusted basis 150 percent higher than in 1980. The inconvenient truth is that the loss of 6 million manufacturing jobs can be attributed principally to the growth in manufacturing productivity, which rose with the advent of new technology. The Brookings Institution recently reported that while it took 25 workers to produce $1 million of manufactured output in 1980, it takes only 6.5 today. This is the principal cause of job losses, not agreements to open markets and lower tariffs.
This poses a profound problem for President Trump’s pledge to restore manufacturing employment, given that it is impossible to put the new technology toothpaste back in the tube. His remedy to restore employment by scrapping trade agreements is worse than misguided; undoing decades of trade liberalization and hobbling the world trading system will ultimately slow world economic growth and cost U.S. jobs by reducing competitiveness and limiting export opportunities, both for manufactured goods and also for services — the latter of which the U.S. now enjoys a trade surplus of $268 billion.
As Democrats debate how to contend with the radical Trump agenda, they would do well to reconsider how they traded sound economic principles and a belief in building a global economy for joining Donald Trump in dumbing down our national dialog and pandering to dislocated workers with simplistic and naive solutions. Donald Trump may seek to make America great again by wishing away technology and pretending that we can opt out of a competitive global economy, but Democrats would do better to keep America strong by embracing global competition — while at the same time investing in the livelihoods of those who need assistance and compassion.
Peter Clark is an international financial consultant, most recently working for the Asian Development Bank in the Philippines. He lives in Hanover.