A funny thing has happened on the way to this early stage in the development of Donald Trump’s policies on using trade measures to foster manufacturing employment: The nation’s powerful corporate Offshoring Lobby has just revealed that the critics have been right in charging that America’s trade agreements have fueled massive net job and production flight.
The evidence? Its panicky reaction to the president-elect’s declared intention to slap stiff tariffs on the exports its foreign factories try to send to the United States.
Think about it. Ever since the debate over the North American Free Trade Agreement (NAFTA) turned trade into a front-page issue, supporters of new deals insisted that their main aim was fostering exports from the United States. And since these new foreign sales would be added to the exporting firms’ existing sales, American growth and job-creation would increase. The quintessential boast along these lines? Then-Vice President Al Gore’s promise during his 1993 debate with former independent presidential candidate Ross Perot that NAFTA would further open an already huge, fast-growing Mexican consumer market to U.S. producers:
“Did you see the Wal-Mart that opened in Mexico City on the news?…Largest one in the world, if I understand it. They have 72 cash registers ringing constantly with people in that- in Mexico taking American products out of that store….They prefer American products. If we lower those trade barriers and get rid of them altogether, we will have an export surge into Mexico.”
Moreover, during that debate, Gore explicitly refuted Perot’s claim that the vast majority of American exports to Mexico eventually come back to the United States because they’re parts and components of finished goods that Mexicans have been too poor to consume. That is, Gore insisted that when American business looked at Mexico, it overwhelmingly saw those net new customers for their U.S. facilities and employees that would boost their American production and employment. And he dismissed as not even a half-truth the notion that the multinationals valued Mexico largely as a source of low-wage workers in a regulation-light country that could replace American workers in their U.S.-focused supply chains.
Years later, a different export-oriented justification for free trade agreements and offshored production emerged – especially in the policy community: American multinational companies were mainly building factories overseas because they were the most effective way to reach foreign customers, but that these new plants were engaged in the relatively simple activity of assembling finished goods from large numbers of more advanced parts and components. And since domestic U.S. factories and workers excelled in the latter, offshored production would serve as an immensely powerful magnet for those more sophisticated products.
Interestingly, by 1997, these contentions were all debunked by an unusually authoritative source – Gore’s boss, President Bill Clinton. In a speech aimed at convincing American labor unions to endorse his quest for new trade agreements, Clinton insisted that the deals he had in mind weren’t “about NAFTA or factories moving there to sell back to here.” Not that anyone noticed at the time – and I didn’t even find this quote till researching my book The Race to the Bottom in 1999.
Fast forward to today. There’s no doubt that purchasing power in many low-income countries (especially China) has increased substantially. But there’s also no doubt that it hasn’t improved nearly enough to enable them to rely on their own domestic consumption to spearhead their growth and modernization. Therefore, “moving there” by American businesses is still heavily motivated by “selling back to here.”
And even stronger evidence comes from the howls of corporate protests against Trump’s tariff plans. After all, if serving those foreign markets was the top priority for production offshoring – and especially if Gore was right and that “80 to 90 percent” of American sales to Mexico even more than 20 years ago stayed in Mexico (and similar countries) – why would tariffs reducing their access to the United States matter so much? In particular, if corporate offshoring has had so little to do with supplying U.S. customers, why would Corporate America not in effect throw a bone to a new president and win more than a little White House good will – not to mention great PR with so many Main Street Americans?
The answer, of course, is that the Gore view of offshoring remains as bogus today as it was the night he debated Perot, and that Trump is absolutely right: Without easy access to the U.S. market, offshored production loses a decisive share of its value. Therefore, denying or at least interfering with this access via trade curbs should create powerful incentives to bring these factories (and related facilities, like labs) stateside again. Clearly these firms know it. Mr. Trump’s election indicates that much of the public knows it. The only remaining question is whether, and how quickly, Congress and the chattering classes will catch on.