- March 16, 2017
- Posted by: Robert Kleinheinz, PhD
- Categories: blog, General Economy
President Donald Trump has promised to radically change the trade relationship between the United States and the rest of the world. He has already pulled the nation out of the Trans-Pacific Partnership (TPP), has promised to renegotiate the North American Free Trade Agreement (NAFTA), and intends to penalize China for unfair trade practices.
President Trump argues that the United States has negotiated trade deals poorly and the results have been job killing, especially when it comes to American manufacturing. He claims that the nation has lost countless manufacturing jobs to places like Mexico and China.
The facts tell a different story. Manufacturing employment in the United States rose in the post-World War II era, peaking in 1979 at 19.4 million jobs, and then began to fall, long before NAFTA’s ratification in 1994. In fact, manufacturing actually added 200,000 jobs between 1994 and 2000. Moreover, the downward trajectory in manufacturing jobs was well underway long before China entered the World Trade Organization (WTO), which gave it access to U.S. markets. No, Mexico and China are not the culprits. Rather, it is that thing we love but also hate: Technology.
Technology allows us to take silly pictures and post them for the world to see. It enables legions of American teenagers to sit motionless for hours as they game away, and it lets us order just about anything online with the push of a button and see it on our doorstep the next day. But it has also been displacing American workers for many years, and like it or not, no American politician is going to reverse that decades-long trend.
Pulling back from trade deals, renegotiating with our trade partners, and imposing a border adjustment tax (BAT) will do two things with certainty. First, it will hurt American consumers and businesses by driving up the price of products such as avocados (Mexico), technology (China), cars (Japan, Germany), and scotch (United Kingdom), to name a few. Second, it will make it more difficult for American companies and their employees to sell U.S. products abroad. This includes computers, agricultural commodities, and possibly even Hollywood movies and television programs.
It’s critical to understand the benefits of trade with other countries. When we buy things from abroad that cost more to make here, it confers huge benefits to consumers, businesses, and the broader economy. By buying low-priced, imported goods, American households are better able to stretch their purchasing power. The same goes for American businesses.
And let’s not forget the other side of this equation. The United States exports a significant and wide array of goods and services to its trade partners: aircraft, heavy equipment, architectural services, feature films and television series, not to mention agricultural commodities. Many of these exports capitalize on the United States’ comparative advantages as a place of innovation and technological advances along with creative, highly skilled, but also relatively expensive labor. On the global stage, these are the things that make the U.S. a world economic leader. Unfortunately, in a dynamic global and national economy, there will be those who rise with the tide and others who do not. This is the nature of competition and capitalism.
There is no question that the United States should establish and maintain trade relationships that are fair and beneficial to American companies, workers, and consumers. We must “hold feet to the fire” when they are not. But it makes no sense to throw trade relationships out on false premises, such as the empty promise of rebuilding American manufacturing and bringing well-paying manufacturing jobs back.
And what about California? As important as Mexico and China are to U.S. trade they are even more important to California. With a prime location on the Pacific coast, ports up and down the state have for decades reaped the benefits of growth in trans-Pacific trade.
It is no accident that the twin ports of Los Angeles and Long Beach make up the largest container port complex in the Western Hemisphere. And NAFTA has enabled rich trading relationships between California and both Canada and Mexico. These are trade relationships with long and attenuated supply chains that connect California to other parts of the world, often making a series of stops in Pacific Asia before looping back to North America by way of Mexico. And it’s not just goods that are made in California. Don’t forget another major source of exports: intellectual property in the form of movies, television programs, games, and other creative products.
If President Trump has his way on trade, he will be hurting the very people he has promised to help, and he’ll put a big dent in the California economy in the process. The more Californians understand about the importance of their state’s trade relationships with the rest of the world, the clearer it becomes how much they stand to lose from Trump’s protectionist trade policies.