Im-Politic: Will Trump Spark a GOP Revolt on Trade Policy, Too?

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2016 elections, Donald Trump, fast track, free trade agreements, illegal immigration, Im-Politic, immigrants, Immigration, Jeff Sessions, Jim Tankersley, legal immigration, offshoring, Republicans, Scott Walker, Ted Crjz, The New York Times, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, wages, Washington Post

Honestly – I’m still trying to make sure that posts about Donald Trump don’t completely dominate RealityChek. But with the Republican presidential front-runner still shaking up American politics and policy on an almost daily basis, especially on the vitally important issues of trade and immigration, what am I supposed to do?

The latest bombshells Trump has dropped into the 2016 election mix have now received extensive coverage from The New York Times and the Washington Post – entailing his talk of tax hikes on key segments of the Republican political donor base, like offshoring multinational companies and hedge fund managers.

But the Post article also indicated that an equally important development has been gathering momentum: Some major Republican candidates are starting to criticize Open Borders and amnesty-friendly immigration policies not only on national security, sovereignty, and law-and-order grounds; out of multi-culturalism-related concerns; or based on their role in excessively fueling Big Government and the Welfare State. Instead, these figures are starting to criticize the establishment’s current and favored immigration policies on wage-related grounds. It’s a shift that – finally – opens the way, at least in theory, for these candidates and others to start criticizing the trade policy status quo for similar reasons,and weaken its hold on political Washington.

For years, I’ve been struck by how immigration policy critics have faced the same kinds of powerful opponents as trade policy critics – especially Big Business and the Mainstream Media – yet have achieved much more impressive results. And for just as many years, I’ve been frustrated that even during economically troubled times, these immigration critics haven’t focused their formidable energies and talents on trade measures and decisions that have devastated the jobs and wages of the middle- and working-class Americans so prominent in their ranks. Still more bewildering, many Republican politicians in Washington who staunchly opposed amnesty-friendly immigration reform proposals just as staunchly backed job- and wage-killing trade measures.

Trump has long been one of a handful of national figures who has been as exorcised about Washington’s thoroughly bipartisan trade policy blunders as about its immigration policy failures, and both indictments have been at the center of his campaign. Now it looks like his success to date, and his focus on the pocketbook impact of the establishment’s trade and immigration agenda, has spawned some influential imitators.

Thus, reports Post correspondent Jim Tankersley, Texas Senator Ted Cruz has recently lamented “the enormous downward pressure on wages and employment that unrestrained illegal immigration is providing.” Wisconsin Governor Scott Walker has become even more emphatic on the subject, and strongly suggested that legal immigration as a major contributor to wage stagnation as well:

“In terms of legal immigration, how we need to approach that going forward is saying—the next president and the next congress need to make decisions about a legal immigration system that’s based on, first and foremost, on protecting American workers and American wages, because the more I’ve talked to folks, I’ve talked to {Republican Senator Jeff Sessions of Alabama] and others out there—but it is a fundamentally lost issue by many in elected positions today—is what is this doing for American workers looking for jobs, what is this doing to wages, and we need to have that be at the forefront of our discussion going forward.”

Cruz actually voted against granting fast track trade negotiating authority to President Obama earlier this year, but animus toward the president rather than economics seemed his main motivation. Indeed, after fast track’s passage, a Cruz spokesman somewhat confusingly declared that “Sen. Cruz remains a strong supporter of free trade and fast-track.” In his only other major trade vote, in 2013, he opposed expanding Buy American requirements for certain federal infrastructure projects.

It’s time for Cruz’ supporters, and those whose support he seeks, to ask him why he thinks admitting large numbers of immigrants from low-income countries like Mexico depresses U.S. wages, but passing trade deals that send U.S. production to such countries – and their low wage workers – has no such impact. Ditto for Walker, who hasn’t voted for any trade agreements, but has strongly endorsed Mr. Obama’s proposed Trans-Pacific Partnership (TPP) trade deal (albeit with some wiggle room).

Indeed, if these candidates aren’t ready to rethink their illogical endorsement of these economically destructive trade policies, I’d advise them to start thinking of some convincing answers soon. Because if the voters don’t yet get the connection, it’s clear that the outspoken Mr. Trump does.

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(What’s Left of) Our Economy: Manufacturing Renaissance, RIP

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aerospace, Boston Consulting Group, defense manufacturing, durable goods, Federal Reserve, industrial production, inflation-adjusted growth, Jim Tankersley, manufacturing, manufacturing jobs, manufacturing renaissance, non-durable goods, Washington Post, {What's Left of) Our Economy

I’m pleased to announce that the Washington Post has just reported on a major recent finding of mine about America’s supposed manufacturing renaissance: In terms of the supremely important measure of inflation-adjusted output, it never happened.

As summarized in a new piece by correspondent Jim Tankersley, revisions last month to Federal Reserve data show that instead of surpassing the highs it reached on the eve of the last recession, more than seven years ago, manufacturing production in real terms still hasn’t recovered the ground it lost. By contrast, in the two previous economic recoveries, manufacturing took much less time to exceed its previous output peak

Shortly after discovering this change, I shared the information with Tankersley and, gratifyingly, he considered it newsworthy.

His write-up adds an angle I wasn’t aware of – much of the shortfall has taken place in defense and aerospace manufacturing. At the same time, the picture can be usefully fleshed out with these details:

>The timing of the revisions couldn’t have been stranger. They came out just a six days after the Federal Reserve released its report on June industrial production. How much easier these results would have been to report on had the Fed either included them in that release, or waited to issue them for incorporation into last week’s July figures!

>Although much of the manufacturing renaissance coverage and commentary has focused on the sector’s job levels (in fairness, the holders of jobs do things like vote), I’ve closely monitored production because it ultimately matters much more. After all, how can robust employment be generated and maintained over any period of time without robust output? This relationship is especially important to keep in mind given manufacturing’s historically strong productivity performance. Even though efficiency has been growing more slowly as of late, the sector has a proven knack for using technology and other innovations to turn out more stuff with fewer workers.

>The revisions were anything but trivial. The last pre-revision figures showed that the sector’s output was 2.68 percent greater after inflation than the level it reached at the last recession’s December, 2007 onset. According to the new data, from December, 2007 through June, 2015, real manufacturing production had actually shrunk — by 2.28 percent.

The subsequent July industrial production figures actually reported a December, 2007-June, 2015 manufacturing output decline that was even greater — 2.50 percent. That’s because the June, 2015 real output level was less than originally reported. Happily, the initial July reading showed a monthly increase big enough to bring domestic industry to within 1.67 percent of its pre-recession high.

>Consistent with Tankersley’s finding of outsized downward revisions in defense-related industries, the worst newly revealed manufacturing losses came in durable goods industries. Previously, their inflation-adjusted output was judged to be up 9.52 percent since its December, 2007 pre-recession peak. Now the improvement is pegged at only 2.27 percent.

>Since its own pre-recession peak (July, 2007), non-durable goods output has been even worse than originally thought, but by only 7.88 percent versus 5.20 percent.

>These revisions themselves will be revised further down the road (as will the latest June and July data).  It’s possible, in fact, that these changes will soon incorporate research strongly indicating that manufacturing output has been considerably over-counted in recent years. Why? Because there’s abundant evidence that government statisticians haven’t done well at assessing the rapidly falling prices – and therefore the prevalence in manufactured goods – of parts, components, and other inputs that are imported. If these price changes indeed haven’t been fully captured, then many final manufactures – especially in information technology hardware – contain higher levels of foreign content, and thus lower levels of U.S.-made content, than we currently think.

>What we know for sure now, though, is that by the most meaningful measure, there never was a U.S. manufacturing renaissance, and that those who have been singing its praises – ranging from President Obama to the Boston Consulting Group – have simply been manufacturing and selling snake oil.

Following Up: The Mainstream Media Remains in Denial on Trade Policy and the Middle Class’ Woes

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Following Up, globalization, Jim Tankersley, middle class, Trade, Washington Post

Two Fridays ago, I expressed the hope that the Washington Post‘s big new series on the decline of the American middle class would deal realistically with the impact of decades of trade policy decisions. The reason should be obvious – these decisions have undermined employment and wages in the U.S. manufacturing sector, which both dominates the nation’s trade flows and boasts an unrivaled record of enabling working class Americans to lead middle class lives.

Now the final results are in, and unfortunately, my hopes proved unfounded. The series, by Post reporter Jim Tankersley, continued the Mainstream Media practice of portraying the harm done to American workers as the product of (to quote from my previous post) “impersonal forces that result from natural, and usually ultimately beneficial, changes such as new technologies that make international business networks much easier to establish and manage, or the adoption of free market practices by many low-income economies after the fall of the Soviet Union.”

Completely overlooked (again, to quote the previous post) was “the role played by human decisions that were anything but inevitable – chiefly, the Cold War-era decision to build up and strengthen allies in Europe and Asia through massive import buying without insisting on reciprocity, and the post-Cold War decision to add to those policies trade deals with low-income countries that were tailor-made to foster production and job offshoring.”

Just consider these passages from the series’ December 14 installment on “The Devalued American Worker”:

>”[I]t was a particular sort of job that disappeared permanently in [recent American economic] downturns, economists from Duke University and the University of British Columbia have found: jobs that companies could easily outsource overseas or replace with a machine.”

>”North Carolina was one of the states that lost thousands of jobs due to the expanded trade and improved technology in the 2000s — the forces and federal policies that pushed work abroad or allowed employers to replace workers with machines.”

>”[MIT] research pins much of that loss on the effects of expanded trade with China, because Chinese factories made many of the same items North Carolina’s factories did, but at a much cheaper price….[MIT research estimates] that increased import competition from China killed at least 2 million jobs, on net.”

And that’s it. Companies apparently discovered that many types of jobs could be outsourced in a policy vacuum. Trade simply “expanded.” Import competition simply “increased.”

Yes, there was a tantalizing reference to “policies that pushed work abroad.” But nowhere did the articles explain what those policies have been, or how they have worked.

The Post series is certainly worth reading. Especially interesting is its running theme that, according to much research, “a thriving middle class fosters entrepreneurs and economic mobility.” Tankerlsey’s analysis of the damaging over-growth of the American finance sector is exceptionally well documented. And the articles are a wealth of useful, if overwhelmingly depressing, statistics. But if you’ve been looking for even a journalistic nod to the notion that many of the middle class’ woes have been Made in Washington, D.C. and in the boardrooms of offshoring-happy American multinational companies, you’ll need to keep looking.

(What’s Left of) Our Economy: A Guide to the Post’s New Middle Class Series

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globalization, Jim Tankersley, Jobs, manufacturing, middle class, offshoring, Trade, Washington Post, {What's Left of) Our Economy

The Washington Post today has launched a multi-part series on the decline of the American middle class, and I’m kind of excited about it. The Post of course is a pillar of a Mainstream Media establishment that’s grown distant from Main Street. As with its peers, even when its largely Ivy League- or equivalent educated reporters and editors and columnists do turn their attentions to Everyday Americans (and yes, we sure need some new synonyms on this score!), they tend to view them as blue-collar lunks (and lunk-ettes) whose only hope for progress is some combination of better education, a more generous welfare state, and (more recently) fiat wage increases.

The first installment of the series is certainly a compelling description of one instance of decline – which, revealingly, centers on skilled workers in advanced manufacturing. (At the same time, much of the aerospace work spotlighted was defense-related, whose ups and downs stem mainly from major non-economic dynamics.) And the subject has been a long-time focus of reporter Jim Tankersley. Perhaps most promising – he says he’s going to offer a master theory for the middle class’ plight, so it’s clear that considerable thought has gone into this project.

But as you sharp-eyed readers have noticed, I began by saying I was only “kind of excited.” On top of wanting to withhold final judgment until I see the entire product, I’ll be waiting to see how Tankersley handles trade and globalization issues. My two main reasons:

First, it’s already a Mainstream Media cliche to observe that “trade” or “foreign competition” or “globalization” has been a significant loser on net for most Americans. Yet the problem with such analyses is that they portray these developments as impersonal forces that result from natural, and usually ultimately beneficial, changes such as new technologies that make international business networks much easier to establish and manage, or the adoption of free market practices by many low-income economies after the fall of the Soviet Union.

These changes have undeniably taken place. But what’s typically missed is the role played by human decisions that were anything but inevitable – chiefly, the Cold War-era decision to build up and strengthen allies in Europe and Asia through massive import buying without insisting on reciprocity, and the post-Cold War decision to add to those policies trade deals with low-income countries that were tailor-made to foster production and job offshoring. And decisions made by human beings that are not inevitable can be reversed.

My second reason for waiting-and-seeing re the Post series has to do with my view that these trade policies have been the single most important cause of middle class decline. Their overarching effect has been to divorce the fortunes of Big Business and Big Finance from the fortunes of the rest of the U.S. economy. As a result, they were crucial to setting in motion a wide range of changes usually portrayed as purely domestic – from a new corporate governance philosophy that elevated shareholder welfare over all else, to de-unionization, to the nation-wide neglect of public schools and infrastructure, and eventually to the credit and housing subsidies showered on Main Street to try to make up for income decline and keep the political peace and the economic power structure intact. Without understanding how global and domestic trends have been interacting in recent decades, there’s not much hope for reform that will not only buttress the middle class, but put the entire economy on a much more durable foundation.

From what I know of Tankersley, his series will add to public (and media) understanding of the middle class even without recognizing and making the above points. Here’s hoping that it’s not also a missed opportunity.