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"Last Week Tonight, BMW, bubble decade, China, consumer prices, domestic content, Financial Crisis, Global Imbalances, Jobs, John Oliver, manufacturing, Peter Navarro, productivity, tariffs, Trade, Trade Deficits, Trump, wages, {What's Left of) Our Economy
In his segment last night on President Trump’s trade policy, HBO Will Rogers wannabe John Oliver had some good fun at my expense due to a technical glitch here on RealityChek, and I deserved it. In the course of making the case why Mr. Trump’s tariff-centered approach is dangerous economic Know-nothing-ism, the (profanity-philic) comedian argued that the President’s main trade adviser, Peter Navarro, once cited me as one of only two economists that agree with his views on the harm of trade deficits – and then correctly pointed out that I told an inquiring journalist soon after that I don’t hold an economics degree. (I recounted these events in this post.)
Oliver proceeded to go on to suggest that I don’t hold a degree in website design, either (and maybe nothing else?), spotlighting the RealityChek bio section where my portrait hasn’t been rotated correctly. And to that I plead “guilty.” I’m a stubborn techno-phobe and have never managed to figure out how to present the photo rightside up. But first impressions are important, and I should have somehow taken care of it. So my bad.
Oliver deserves credit on two other counts as well. First, he acknowledges that trade policy is complicated, and that unfettered trade can have major downsides. Indeed, he even specifies that for trade’s overall net gains to be realized, it needs to be “done right,” and that valid grounds exist for complaints about China’s trade policies in particular. Second, he asked one of his producers to check whether or not I still lack an economics degree.
But what’s also noteworthy (and not so commendable) about that instance of meticulousness is that, although this producer and I wound up having a fairly lengthy conversation about trade policy, my only “contribution” to the show was strengthening Oliver’s attack on Navarro. And that’s really too bad for anyone seeking genuinely to understand the pros and cons, and ins and outs of trade policy. Because had Oliver and his staff gone beyond my bio page, here’s some of what they would have found:
>Despite Oliver’s claim that tariffs are to be avoided in large part because they make goods for consumers and producers who use the tariff-ed products more expensive, there’s little evidence that, in today’s U.S. economy, many producers have the pricing power to pull this feat off. For that, you can thank a combination of the lingering impact of the last financial crisis and ensuing Great Recession (which resulted in part from American leaders ignoring the huge, trade-centered global imbalances that were building up during the bubble decade). And let’s not forget the longer-lasting wage stagnation that’s afflicted so much of the American labor force (which can also be blamed in part on trade policies that have exposed this workforce to penny-wage foreign competition and/or predatory practices by low- and high-wage foreign competitors alike).
>Although Oliver contends that Trump-like concerns about trade policy’s impact on U.S. domestic manufacturing overlook how much larger American industry is today than in 1984, during the current economic recovery, after-inflation manufacturing output has yet to regain its pre-recession production levels. And perhaps not so coincidentally, all the while, the manufacturing trade deficit has surged to the point where it’s likely to hit $1 trillion this year (in pre-inflation dollars). In other words, that’s a lot of American demand for manufactured products that was supplied from foreign economies rather than from the U.S. economy.
>Oliver accepts as gospel the view that manufacturing’s recent employment losses are due mainly to the sector’s productivity gains, not to failed U.S. trade policies. But industry’s productivity performance has been so poor for so long that it’s lost its historic role as the country’s labor productivity growth leader. Further, it’s anything but difficult to find highly credentialed economists who finger inadequately dealt-with foreign competition instead.
>Oliver makes much of how Mr. Trump’s tariffs on steel and aluminum will cost many more jobs than they save or create by observing that they will harm metals-using industries – which employ many more Americans than the metals producers. Yet since the metals tariffs began to be imposed, these sectors have experienced growth and employment gains at least as strong as those of the rest of manufacturing.
>Like so many journalists, Oliver describes BMW as an American manufacturing gem because it builds so many of its vehicles in South Carolina – and an example of how the Trump trade approach simplistically assumes that domestic and foreign companies can be easily distinguished. Like many journalists, however, Oliver ignores readily available U.S. government data making clear that BMW in the United States mainly snaps together foreign-produced parts and components, and therefore adds relatively little value to the American economy.
>According to Oliver, Trump’s metals tariffs are also boneheaded because they are “pissing off the leaders of every other country on earth” and therefore sandbagging any hope of prevailing in trade diplomacy against the world’s main metals trade bad guy, China. Too bad he never mentioned that, as China’s metals glut ballooned, the United States emerged as far and away the world’s metals dumping ground of last resort because other metals-producing countries responded to Chinese pressure on their own industries either by transshipping Chinese metals, or stepping up their own exports to the United States to compensate. I.e., a global problem required a global response. P.S.: The world’s leading economies have been vowing to work on multilateral responses to China’s overcapacity for nearly two years, and have produced exactly nothing in the way of concrete results.
>Most disappointing, I asked Oliver’s fact-checker why her boss puts so much stock in economists’ views when nearly all of them (including those so confident in orthodox trade theories and their policy implications) clearly flunked the biggest test they’d faced in decades: warning that the economy of the previous decade was an immense bubble whose bursting would bring disaster. Or figuring out that anything was fundamentally wrong with the American economy in those years. Her response: Many of them did – which will come as a major surprise to anyone in the mid-2000s who owned a home or a share of stock.
There’s more, but let’s close with this irony: Even though Oliver made much of China’s decision to impose some retaliatory tariff on U.S. goods, in contrast to a Navarro prediction, a team of high level Chinese negotiators will arrive in Washington, D.C. in a few days to try and end a trade confrontation that has hammered their country’s stock markets and currency, and that, according to numerous reports, has President Xi Jinping worried that he’s overplayed China’s economic hand. Any chance that any of this upcoming highlight of this week’s news will be reported on the next edition of “Last Week Tonight”?
