2016 election, advanced manufacturing, apparel, Donald Trump, Follwing Up, Hillary Clinton, inflation-adjusted growth, Made in Washington trade deficit, multinational corporations, NAFTA, North American Free Trade Agreement, offshoring, offshoring lobby, recovery, regulation, Rust Belt, steel, subsidies, taxes, The Race to the Bottom, Trade, Trade Deficits, trade law, World Trade Organization, WTO
Donald Trump has just given a deadly serious, detailed, and common-sensical speech about the need for overhauling American trade policy, and the establishment media has decided to respond largely by dredging up the fatuous observation that the presumptive Republican presidential nominee himself produces his name-brand apparel overseas.
Before dealing with some of the genuine – though anything but fatal – shortcomings of Trump’s trade speech, let me (again) dispose of this ignorance-based cheap shot: The very trade policies that Trump has been attacking have practically destroyed the domestic U.S. apparel industry. When Trump claims that it’s nearly impossible to make garments in this country profitably anymore, he’s absolutely right. Indeed, the Federal Reserve’s industrial production data show that, since the North American Free Trade Agreement went into effect in January, 1994, and launched the current, offshoring-focused stage of U.S. trade policy, domestic garment output is down nearly 83 percent in real terms. That’s a bloodbath.
Yes, that means that some companies still produce clothing in the United States. But it also means that the biggest money in the industry has taken the hint that opening the American market to competition from penny-wage developing countries with no meaningful environmental or worker safety regulation has been an invitation to shut down or join the party and offshore. Any journalist who fails to mention these facts is either clueless or trying to sell you a bill of goods.
At the same time, since most of the public isn’t well informed about trade and manufacturing specifics, either. And since a torrent of such slanted coverage – which has been echoed by Trump’s presumptive November rival, Hillary Clinton – can definitely affect voter judgment, Trump needs to make it as difficult as possible for opponents to portray him as a know-nothing or a hypocrite on what he clearly sees as a core issue. This is where his Tuesday speech – which overall, I liked – fell somewhat short. Here are some important examples:
>Trump deserves a lot of credit for pointing out that misguided policies have killed not only employment – especially in trade-sensitive manufacturing – but growth throughout the economy. But he left off the table eye-opening figures on just how great the trade toll has been. As I’ve documented, during this feeble economic recovery alone, the growth of that portion of the trade deficit directly influenced by trade policy (what I call the Made in Washington trade deficit) has so far slowed this already feeble expansion by some 20 percent. That’s more than $400 billion after inflation, and he should have defied anyone to insist that huge numbers of jobs haven’t been destroyed as a result.
>The likely GOP standard bearer also rightly blasted American political and business elites for pushing these damaging policies. But explaining exactly why will not only educate the public – it will further infuriate voters. As I’ve written repeatedly, and most comprehensively in my book, The Race to the Bottom, the offshoring focus that has dominated U.S. trade policy since the early 1990s resulted from American multinational corporations realizing that expanding commerce with low-income countries would enable them to improve their own (though not the nation’s) competitiveness and boost profits by supplying the high-price American economy from super-low cost and largely unregulated production sites.
In other words, for all the talk about gigantic, rapidly growing third world markets, post-NAFTA trade deals weren’t mainly about expanding American exports – and therefore growth, employment, and wages. They were mainly about expanding U.S. imports from the multinationals’ new foreign production sites. That is, big American business wanted Americans to keep playing their roles as consumers of the products they made. They just didn’t want them to keep playing their roles as producers of these products. You don’t think a critical mass of voters would be outraged to hear this?
>Trump’s vow to file suits in the World Trade Organization to open foreign markets to U.S.-origin goods and services and halt predatory foreign trade practices is completely inadequate. As I’ve also written, the WTO is far from a U.S.-like trade court where objective magistrates render impartial justice. It’s an anti-American kangaroo court numerically dominated by foreign trade powers whose overwhelming interest lies in keeping the U.S. market much more open to their goods and services than their markets are to U.S. exports. That’s largely why even when the United States does win WTO cases, the process takes so long that American interests have been dealt decisive setbacks.
In fact, that’s also why the Offshoring Lobby pushed so hard back in the 1990s for U.S. Entry into the WTO. They knew that it would give predatory foreign trade powers substantial legal immunity from American efforts to deal with illegal subsidization, dumping, currency manipulation, and the like – and that the factories they moved and built abroad would benefit from these market-distorting practices at the expense of domestic American producers and their workers.
In other words, Trump shouldn’t be arguing for working through the WTO. He should be promising to seek an American withdrawal.
>Trump’s related promise to file more suits against predatory foreign traders in the U.S. trade law system is sorely inadequate for three main reasons. First, as suggested above, the WTO nullifies most of America’s legal authority to use such unilateral mechanisms. Second, the domestic trade law system is almost as slow-moving as the WTO. And third, this legalistic set of procedures is by definition piecemeal and reactive. If Trump thinks that American trade law can help make the U.S. economy great again in his lifetime, he’s dreaming.
>I recognize that the steel industry has acquired iconic status in American culture and politics. It also remains incredibly important economically. But Trump’s exclusive reliance on steel’s recent woes to illustrate what’s wrong with American trade policy unfortunately reinforces the wrongheaded conventional wisdom that trade policy critics are naively obsessed with reviving so-called Rust Belt industries.
What Trump should have added is that manufacturing sectors running sizable trade deficits also include semiconductors, electro-medical devices, all categories of machine tools, farm machinery, construction equipment, ball bearings, telecommunications equipment (not including smartphones), and pharmaceuticals. Believe me, I could go on. And that’s not your classic Rust Belt stuff. Are all these domestic producers hopelessly uncompetitive, Trump should ask? Or are global trade markets unmistakably rigged even against American-made products falling into any knowledgeable definition of advanced manufacturing?
>Trump clearly felt the need to throw some red meat to traditional Republicans and conservatives by also promising to boost the productive sectors of the American economy by getting rid of “wasteful rules and regulations” and cutting taxes in order to “make America the best place in the world to start a business, hire workers, and open a factory.”
Of course, there’s an important, legitimate debate about the proper scope of regulations and the proper level of taxation for both corporations and individuals. Think though, of the outreach potential to independent and even many Democratic voters had Trump added something along these lines:
“But we also have to remember that many of our regulations also serve the vital purpose of protecting us from dangers like polluted air, water, and land; and unsafe food and workplaces. By freeing America’s domestic companies of the need to compete against rivals free to ignore these goals, we preserve regulations reflecting values we should be proud of, and ensure that we remain a genuine first world country.”
And let’s not forget arguments made in Trump’s tax plan (though in a form that’s surely vastly overstated) but neglected in this speech: All else equal, the faster the economy’s real (as opposed to bubble-ized) growth, the stronger its ability to generate the tax revenues that are both politically acceptable and needed to finance true national needs and popular national desires in a responsible way.
Again, I really do believe that this Trump speech was the best Americans have heard on trade in decades. But that bar has been abysmally low. If Trump wants to make America “Greater Than Ever Before” ensuring that his trade positions fit this description will help a lot.