The Trump Trade Policy Agenda

“There are three kinds of lies: lies, damned lies and statistics.”Mark Twain

On March 1, Trump released his Administration’s trade policy. The thinking reveals why Trump has so many business failures.

The key objectives of the Trump administration’s trade policy have merit. But the way that employment statistics are used to support the strategy to dismantle the trade agreements that are crucial to the United States is disingenuous.

Key to the argument are the manufacturing jobs that have been lost in the United States since China joined the World Trade Organization (WTO). They argue that in January 2000, there were 17,284,000 manufacturing jobs in the United States, but by January 2017 there were only 12,341,000, a loss of almost 5 million jobs. In January 2000, the unemployment rate was 4%. January 2017, the unemployment rate was 4.8%. The difference for the economy as a whole is 1.75 million jobs, not the 5 million the Trump and his team claim are manufacturing alone.

During the campaign, Trump said the labor department’s figures were “phony”. Now that they’re his responsibility, he says the numbers are credible1)Unemployment numbers not ‘phony’ to Trump anymore.

The benefits of trade have been understood for centuries. In 1817, in his theory of trade, Ricardo explained the idea of comparative advantage – countries do what they do best, exporting their excess capacity, importing what they don’t produce themselves. It is efficient and is win win.

But with trade, production moves from one country to another, and that affects the people employed in those industries. That’s difficult for the people who lose their jobs. They have been ignored for too long. Policymakers failed to compensate and train the people who lost their jobs. Trump got elected, and now everyone will pay.

Now though, the figures show that the majority of the people in manufacturing have moved on.

20160813 LDC317The trade with China has not changed America’s long term trend moving away from manufacturing2)Scrimping on sense.

Not only that, worldwide less people are employed in manufacturing as automation takes hold. In a recent paper, the authors argued that 47% of jobs are at risk3)The Future of Employment: How Susceptible Are Jobs to Computerisation?, mostly in routine intensive occupations. John Maynard Keynes 1933 prediction is coming true.

Peter Navarro, Trump’s trade czar, styles himself as a China expert. Navarro has written three books on China, which according to James McGregor, a former chairman of the American Chamber of Commerce in China, “have close to zero credibility with people who know the country,” and are filled with “hyperbole, inaccuracies” and a “cartoonish caricature of China that he puts out.”4)Trump’s Top China Expert Isn’t a China Expert

Navarro argues that China is undervaluing it’s currency, dumping goods, protecting it’s industries from foreign competition, and stealing Intellectual Property (IP). He wants to charge a 45% tariff on Chinese goods.

Navarro’s argument that China is undervaluing its currency is outdated.

The dumping of goods is true only for the China;s troubled industries, steel being the big one. The protection of the country’s industries is a legitimate complaint, but America is equally guilty. Ask anyone who has suffered the absurdities of the Fly America act.

The theft of IP has a degree of legitimacy. That requires that Chinese authorities to enforce American rights. Starting a trade war is not an incentive to fix that.

Navarro and Trump think that the TPP, the TTIP, and WTO are worthless. They believe that they can get better deals for America through bilateral trade agreements.

Good luck with that.

More at:
Cheap automation raises risk of ‘premature deindustrialisation’
Donald Trump’s review of trade deficits is a blast from the past
Economic Impact of Trade Agreements Implemented Under Trade Authorities Procedures, 2016 Report
The Future of Employment: How Susceptible Are Jobs to Computerisation?
KORUS of disapproval
The Mind of Donald Trump
Premature Deindustrialization
Robots and Jobs: Evidence From US Labor Markets
Scrimping on sense
Trump’s Meeting With China Is Difficult Because The Donald Is Wrong About Trade, Deficits And Jobs
Trump’s Top China Expert Isn’t a China Expert
Unemployment numbers not ‘phony’ to Trump anymore
Working for Trump is an embarrassment

Footnotes

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Trade – tyranny or triumph?

Red river, HanoiBefore the creation of Brasilia, Johannesburg (then the world’s 80th largest) was the biggest city not on a major waterway. Great cities are the gateways to the trade routes that are often the Earth’s waterways. That surprising fact confirms the importance of trade as the source of economic growth. There is a lot of debate about who benefits from that wealth.

What’s interesting is that China’s establishment as an economic powerhouse is directly linked to the country joining the World Trade Organization in 2001. And that lifted 400 million people out of poverty, doing more to achieve the Millennium Development Goals than all the millions of dollars that aid agencies dedicated to those objectives.

At the beginning of the 16th century China and India represented 50% of the world’s economy. After Marco Polo had introduced Europe to Eastern goods, traders convinced their governments, Portugal, then Holland, followed by the British (who built an Empire on trade) to find trade routes to the East. And they did.

For centuries economists have been telling us that trade is good. Over two hundred years ago, Adam Smith in his seminal work, the Wealth of Nations, explained the benefits of trade. Simply stated, through trade – goods are cheaper and consumers benefit from the lower prices.

But when the manufacture of goods moves off-shore, jobs in the local economy are lost. Historically economists have argued that the workers adapt, learning new skills, and move to places offering jobs that need those skills.

Those economists have probably never experienced the trauma of losing a job, surrounded by friends who have lost theirs, without the resources to develop the new skills and the money to move to an unfamiliar place in the hope of getting a job, that often demands prior experience.

Lately some economists have uncovered the error in their thinking. They have discovered that many people who become unemployed as their jobs move off-shore eventually stop looking for work.

In Europe they are voting for the fringe parties that believe that the Union is a failure. In America they are voting for Donald Trump.

Their answer is to build walls, and end trade. Building islands of isolation.

That does not work. South Africa was forced into isolation during the apartheid years, and that eventually destroyed the economy. The desperate state of the economy forced De Klerk to release Mandela, and call a referendum asking whether everyone should be given the right to vote. And the privileged, faced with economic collapse, gave up their status.

Until then, South Africa’s businesses, sheltered from international competition became ever less efficient, and goods became more and more expensive creating the curse of rampant inflation. The prime overdraft rate reached an unaffordable 25%. Businesses were collapsing and unemployment rocketed.

And that is what Trump and his European counterparts are wishing on their constituencies.

Targeting trade is killing the goose that lays the golden egg. The answer is to acknowledge that while the majority of the population benefits from trade deals, there are some people for whom upheaval is their only prospect. The affected businesses can afford to lobby and they make sure that their interests are more than looked after. It is the ordinary voters, whose elected representatives are failing them, that need to have their interests protected, and included as a part of any trade arrangement. The deal for them should be so good that they are the most vocal champions of the trade alliance.

Until that happens, the world’s economy which is struggling to move forward, will steadily move in the opposite direction.

More at:
A hire power
A lapse in concentration
Adding Japan And Korea To The TPP
AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions
An inconvenient iota of truth
An open and shut case
Asterix in Belgium
Capital Controls: Gates Versus Walls
Chairman president
China In The TPP
The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade
The China Syndrome: Local Labor Market Effects of Import Competition in the United States
Collateral damage
Coming and going
The Condensed Wealth of Nations
The consensus crumbles
Dealing with Donald
Declining Migration Within the US: The Role of the Labor Market
Developing-Country Trade and US Wages: Theoretical Perspectives
Do Developed and Developing Countries Compete Head to Head?
Donald Trump’s Trade Policies: Blessing Or Curse?
Drawbridges up
The Economic Effects of the Trans-Pacific Partnership: New Estimates
Economic Implications of Deeper South Asian–Southeast Asian Integration
Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys
Explaining nationalist political views: The case of Donald Trump
Fear of the maple menace
A Firm-Level Perspective on the Role of Rents in the Rise in Inequality
Firming Up Inequality
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Globalization and the Inequality of Nations
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The Great Convergence: Information Technology and the New Globalization
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The Hyperglobalization of Trade and Its Future
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Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure
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Industrial robots will replace manufacturing jobs — and that’s a good thing
Inequality and Unemployment in a Global Economy
It’s Where You Work: Increases in Earnings Dispersion across Establishments and Individuals in the U.S.
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Land ahoy!
The Long-Term Decline in Prime-Age Male Labor Force Participation
Measuring The Unequal Gains From Trade
NAFTA and other trade deals have not gutted American manufacturing
NAFTA at 20: Misleading Charges and Positive Achievements
Needed but not wanted
Neoliberalism: Oversold
The Neoliberal Mind at Work: Brad DeLong’s Muddled Defense of NAFTA
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South African Trade Policy Matters: Trade Performance And Trade Policy
The Surprisingly Swift Decline of U.S. Manufacturing Employment
The toll of tariffs
Three amigos and two spectres
Through the mill
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Trade and Inequality: From Theory to Estimation
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Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence
The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications
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US Trade and Wages: The Misleading Implications of Conventional Trade Theory
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Wallonia is adamantly blocking the EU’s trade deal with Canada
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Wealth of Nations
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Why Has Regional Income Convergence in the U.S. Declined?
Why is globalisation under attack?
Why they’re wrong