(What’s Left of) Our Economy: Some Real Fake News on Trump and Trade Data

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Canada, data, domestic exports, economic growth, exports, imports, imports for consumption, Jobs, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, Public Citizen, re-exports, The Wall Street Journal, Trade, Trump, {What's Left of) Our Economy

Talk about a non-story. That some globalization cheerleaders have tried to blow up into a scandal. And all because the Trump administration seems to be interested in correcting important distortions in some commonly used U.S. trade data that presents a misleading picture of America’s exports, imports, and trade balances.

Here’s the situation. Last Sunday, The Wall Street Journal reported that  “The Trump administration is considering changing the way it calculates U.S. trade deficits, a shift that would make the country’s trade gap appear larger than it had in past years, according to people involved in the discussions.”

According to the Journal, “The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged….”

Continued the article, “Economists say that approach would inflate trade deficit numbers because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.”

So in other words, President Trump and his minions are thinking of artificially deflating the figures describing what the United States sells to the rest of the world, but not making a corresponding change on the import side that would reduce the amount of goods that the nation buys from its trade partners. The result would be a larger U.S. trade deficit, and added ammo for the administration’s claim that America’s trade policy needs major surgery. Talk about creating “alternative facts,” right?

That’s what the Journal‘s editorial board concluded. Charged these trade zealots, the Trump-ers’ “effort to recalculate U.S. trade flows to show larger deficits” is a “trick….borrowed from the political left” that “deserves to be hooted down as an attempt to manipulate statistics to assist bad economic policy [i.e., curbs on trade flows].”

But these allegations aren’t even close to the mark – that is, if you believe the Journal‘s own reporting. For as the original piece eventually reveals (based, as is the entire article, on anonymous sources), the president’s team is indeed mulling making those import data changes, too – which would involve switching the import measure “to ‘imports for consumption,’ a slightly narrower way of measuring imports that would make less of a difference in the overall balance. “

Which means that – weirdly – the Journal reporters decided not to tell those outraged economists that the supposed Trump administration exercise would make statistically valid symmetrical changes, or that these (of course nameless) economists received this info from the reporters and decided to ignore it in order to try to create the appearance of impropriety. It also means that Journal editorial writers either didn’t read their own publication’s coverage all the way through, or chose to ignore that decisive material. Either way, someone has just massively violated their profession’s ethics.

As for the change (reportedly) under consideration itself, it’s entirely justified because those re-exports that under the main system for presenting trade data are counted as real exports literally are not Made in America. As indicated above, they enter the U.S. economy from abroad and then are shipped overseas (or across the border to Canada or Mexico) in nearly all cases entirely or virtually unchanged.

This means that they add virtually nothing to American economic growth or employment – a major and entirely valid reason that exports are so beloved). And although, as some trade advocates claim, their transit into and through the United States creates logistical jobs (in transportation and,warehousing services), such logistical jobs would be created anyway if those goods were domestically produced (Unless you think that such products typically don’t need to be stored after production and then transported to customers, too?)

Moreover, the distortions resulting from sloppy methodology of the main exports numbers are anything but bupkis. Last year, for example, failing to strip out foreign-produced goods boosted total U.S. merchandise exports by 15.43 percent – or $224.33 billion. Relatively speaking, the impact on manufactures exports was even bigger – 17.48 percent, or $223.36 billion.

And the effects on America’s goods exports to Mexico and Canada, its partners in the controversial North American Free Trade Agreement (NAFTA), are especially noteworthy. Proper counting would reduce 2016 U.S. merchandise exports to the former by 23.19 percent and manufactures exports by 25.30 percent. The comparable numbers for Canada are 17.14 percent and 17.93 percent.

Moreover, since proper counting has little effect on import totals, either globally or for NAFTA trade, raising its profile would definitely show higher U.S. deficits. And the export gap has been growing steadily across the board.

Fittingly, this story can be closed on an absurd note, too. As indicated above, the U.S. government already compiles and reports (though in an unsatisfactorily low-profile way), export and import data that quantify exports actually produced in America, and imports actually consumed in America (although, as discussed in this solid Public Citizen analyses, the import numbers could still use some improvement). So a changeover to more accurate figures that reveal trade’s true impact on U.S. production and job creation looks to be pretty easy. Think we’ll be reading about that in The Wall Street Journal?

Im-Politic: It Was Trump – and Nationalism – That Killed TPP for Good

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Campaign for America's Future, Congress, Democrats, fast track, free trade agreements, Im-Politic, Jobs, Lori Wallach, manufacturing, nationalism, progressives, protectionism, Public Citizen, Republicans, Tobita Chow, TPP, Trade, Trans-Pacific Partnership, Trump

However understandably it’s been overshadowed by the earthquake election of 2016, the demise of President Obama’s Trans-Pacific Partnership trade deal (TPP) is a very big, indeed historic, deal. Think of it this way: Do you know how many times since 1950 that a trade agreement concluded by an American administration has been turned back by public opposition? Try “none.”

As a result, it’s vital that trade policy critics correctly understand the ingredients of this victory – if only because they’ll decisively influence the nature of alternative approaches able to pass public and legislative muster. And in this vein, it’s becoming apparent that left-of-center trade activists – who deserve most of the credit for organizing impressive campaigns of opposition to U.S. trade policy since the NAFTA fight of the early 1990s – have especially important lessons to learn. The biggest ones: first, that Donald Trump’s election as president delivered the coup de grace against TPP; and second, and that his fundamentally nationalist arguments made the trade critics’ movement genuinely, and victoriously, bipartisan.

Just to review the history briefly, in 1950, President Truman decided that his plans to create a global trade body with strong enforcement powers were going nowhere, and so the White House announced in December that legislation to approve the globally endorse International Trade Organization would not be put before Congress.

Over the following six and a half decades, Congress did formally or informally rebuff three presidential requests to renew the executive’s trade negotiating authority in conjunction with expedited “fast track” voting procedures. But when actual trade deals came before the House and Senate, all of them passed. Not even the financial crisis and Great Recession were able to generate winning coalitions against new trade agreements, as lawmakers approved deals with Colombia, Korea, and Panama in October, 2011, when the current (historically weak) recovery was still in a relatively early and not especially strong stage.

During all of these trade battles, left-of-center forces such as labor unions and environmental groups provided most of the opposition’s political and financial muscle, its lobbying strength on Capitol Hill, and its grass roots organizing. And considering how tremendously outspent these groups were by Big Business (including Wall Street), and how vigorously the national media tried to marginalize them, these groups performed heroically.

Both President-elect Trump and his Democratic rival, Hillary Clinton ran deeply divisive campaigns. And Mr. Trump’s displayed a clear penchant for assailing numerous liberal social and cultural sacred cows. So it wasn’t entirely surprising that trade critics on the left consistently tried to minimize the overlap between their positions on globalization and those of the GOP candidate. Much more surprising, and less defensible, is how this practice has continued and even intensified since the Trump victory.

The most egregious example seems to have come from Tobita Chow, who heads a Chicago-based political organization called The People’s Lobby and, more important, just wrote on the president-elect and trade for the nationally influential Campaign for America’s Future. According to Chow, although Mr. Trump opposed TPP, he “plans to pursue bilateral trade deals with a number of Asian countries, including with Vietnam, which is also part of the TPP. Expect Trump’s trade deals to be even more damaging for people in the US and abroad than the TPP would be.”

Working a different but related angle, Public Citizen’s Lori Wallach claims that although President Obama’s continuing push for the TPP “helped to elect Donald Trump…Trump himself did not derail the TPP – people power united across borders accomplished that first by delaying the TPP’s completion beyond its 2012 deadline and then by ensuring that a majority in Congress could never be built to implement the deal since it was signed 10 months ago.

“By declaring he will formally bury the zombie TPP, the president-elect is merely acknowledging the obvious: The deal died under the weight of its own terms and could not achieve sufficient support in Congress.“

If Chow is indeed speaking for much of the progressive community, then he’s vividly demonstrated that this faction has become just as oblivious to the concerns of working class Americans as the corporate-funded Clinton wing of the Democratic Party. Here’s why he has such a beef with the President-elect on trade. As he explains it, Mr. Trump’s fundamental mistake is basing his approach to trade

“on his nationalistic politics. Trump has promised to step in and stop competition across borders, and to defend ‘real Americans’ against the immigrants and foreigners whom are too often perceived as threats to their livelihood and their way of life. And in trade policy, Trump is a protectionist. The very name, ‘protectionism’, implies that jobs and investment in other countries are threats, and that we can and should ‘protect’ the American economy against these threats. A protectionist like Trump would have us believe that if we throw up trade barriers and stop investment in foreign countries and force goods to be made in the US, then we can ‘bring back’ jobs and factories from China and Mexico and return to the middle-class economy that flourished between WWII and the 1970s. This is what is captured in Trump’s slogan, ‘Make America Great Again.’”

Chow goes on to sound like a charter member of the nation’s offshoring lobby, or a Mainstream Media columnist, by insisting that

“[T]he slogan is a lie. You can’t ‘bring back’ jobs that don’t exist anymore. Manufacturing jobs are on the decline around the world–including in China. Economist Joseph Stiglitz sums it up: ‘Global employment in manufacturing is going down because productivity increases are exceeding increases in demand for manufactured products by a significant amount.’”

As I’ve written previously, countries much less important economically than the United States has long used their market power to influence multinational companies’ investment decisions and the contours of their supply chains to lure investment – and jobs – to their economies. Why does Chow believe that similar U.S. efforts are bound to fail?

I have other substantive issues with his arguments, but more important is Chow’s conclusion that what Americans should back instead is

“what is sometimes called progressive nationalism: an agenda to pursue a progressive agenda across borders to create a more just and sustainable global society. And since, as progressives, we understand that the labor movement is central to all our struggles, this means that a core goal of progressive internationalism must be to increase the power and status of workers internationally.”

Does he really believe that this will be a winning message in American politics for the foreseeable future? Is there any evidence that the working class that rallied behind Mr. Trump (including many union households) would respond favorably? And if so, what does Chow believe has changed over the last quarter century? After all, progressives have made these points at every opportunity during that period’s trade battles. They never galvanized enough voters to win.

Which brings us to the main weakness of Wallach’s case. She’s right about “people power united across borders” delaying TPP’s conclusion and ratification – and about the importance of buying such time. But ultimately the deal was signed by all the countries involved, and most prospective TPP members with reasonably democratic systems made clear that the U.S. Congress’ ratification was crucial to bringing the treaty across their own various finish lines. The reason was obvious: America’s market would have represented nearly two-thirds of the final free trade zone.

Now ask yourself about TPP’s fate had Clinton won her expected victory this year. Can anyone seriously doubt that she would have pushed for a few cosmetic changes and then worked with pro-TPP Republican Congressional leaders to win a final passage sometime early in her first term that mirrored President Obama’s fast track triumph last year? In fact, as Wallach repeatedly warned before Election Day, when Mr. Trump seemed dead and buried and Clinton seemed sure to win the White House, a TPP vote during a lame duck session of Congress was entirely possible.

Mr. Trump’s election was the event that finished off the treaty for good – both because of his own opposition and because of the shock effect of his upset victory, which revealed that a substantially transformed Republican party electorate wasn’t about to take its cues on trade anymore from the likes of offshoring lobby hired guns like House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell.

In other words, President-elect Trump’s successful conversion of a critical mass of Republicans into energized trade policy critics who actually voted their convictions was what turned the opposition led for so long by the progressives into a truly bipartisan – and therefore winning – movement.

As a result, progressives face a major choice. They can ensure a more lasting defeat for job- and growth-killing trade deals – and lay the foundations for realistic plans to promote greater prosperity outside the United States, too – by acknowledging the political and substantive merits of more nationalistic American trade policies. Or they can keep inveighing against the President-elect and his approach, or provide at best niggardly support, and boost the odds that a genuine revolution in the politics of trade in the United States fizzles out.

(What’s Left of) Our Economy: Progress from Progressives on Trade

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America First, developed countries, developing countries, environmental standards, Financial Crisis, GATT, General Agreement on Tariffs and Trade, George W. Bush, Global Imbalances, Global Trade Watch, globalization, Hillary Clinton, Jared Bernstein, labor standards, Lori Wallach, multinational companies, NAFTA, national treatment, non-discrimination, North American Free Trade Agreement, offshoring, progressives, Public Citizen, The American Prospect, TPP, Trade, Trans-Pacific Partnership, World Trade Organization, WTO, {What's Left of) Our Economy

Ever since the debate over NAFTA (the North American Free Trade Agreement) more than twenty years ago turned trade policy into a nationally contentious issue, the American left has provided the overwhelming share of the political money and muscle aimed at creating urgently needed course corrections. So it’s great to see important signs that progressives have finally started touting two ideas that realistically could make a significant difference.

The evidence can be found in an article coming up in The American Prospect by Jared Bernstein, former top economist to Vice President Biden, and Lori Wallach of Public Citizen’s Global Trade Watch. To be sure, the article does dwell overlong on proposals that left-of-center figures have been making for decades, and that hold little, if any, promise of turning trade agreements and related policy decisions into engines of domestic growth.

For example, there’s the usual call for truly enforceable labor and environmental standards in trade deals – even though adequately inspecting enormous third world national manufacturing complexes is a logistically impossible task. Worse, the offshoring lobby and its minions in Congress and the Executive Branch have already twice used the tactic of making cosmetic changes along these lines in trade agreements to call progressives’ bluff: during the George W. Bush administration in deals with agreements with Panama and Peru; and in President Obama’s Trans-Pacific Partnership (TPP).

Don’t think Democratic presidential candidate Hillary Clinton doesn’t recognize how successful this ploy has been in persuading fence-sitting Congressional Democrats to fall in line behind new trade deals.

Judging from the Bernstein-Wallach piece, moreover, the American left still believes that no hard choices need be made in trade and broader globalization strategy, and that with their proposed reforms, growing international commerce can become a win-win for first and third world workers alike around the world. As I’ve recently written, positive sum outcomes for developed and developing country workforces are possible – if, for instance, NAFTA was turned into a genuine western hemisphere trade bloc, as its leading founders once suggested they intended.

On a global basis, though, the surplus of developing country workers earning pauper wages (both in absolute terms and in relative terms in sectors like advanced manufacturing and high tech services) ensures that for decades the third world will remain much more important as a low-wage and low-regulation production site than as a source of new consumer demand. And as long as that situation holds, astronomical growth-, job-, and wage-killing trade deficits in the United States will be inevitable. Also inevitable will be the buildup of enormous international economic imbalances like those that set the stage for the last financial crisis.

But the most encouraging aspect of the Bernstein-Wallach article was indeed encouraging: The authors argued that not all prospective U.S. trade partners should be treated equally – because they differ in crucial respects. Ever since the current global trading system began taking shape in the immediate aftermath of World War II, one of its biggest weaknesses – and one posing special problems for a relatively open economy like America’s – has been its insistence (largely at Washington’s behest, to be sure) on the principles of non-discrimination and national treatment.

In other words, regardless of how open or closed they are, or how wealthy or impoverished, the United States needed to deal equally with all countries belonging to the old General Agreement on Tariffs and Trade (GATT) and to the newer World Trade Organization (WTO). During the early post-war decades, these requirements legally forced American leaders to open their markets as much, say, to relatively open Britain as to hermetically sealed Japan, and to treat identically in the American market businesses from wildly varying countries.

When the end of the Cold War encouraged third world population giants like China and Mexico to introduce selected free market reforms and join the global economy, the option of mass production offshoring was created for multinational companies. As a result, these GATT and then WTO principles prompted the U.S. leaders influenced by these companies to expand trade whether or not the target countries could become significant net consumers, and thus create reasonably balanced trade flows and their economic benefits.

Bernstein and Wallach don’t favor discrimination on grounds like these. (That’s not surprising, since this practice would undercut their positive-sum first-third world trade optimism.) But they do urge selecting

“trade partners based on their countries’ records of compliance with the terms of past trade agreements, international labor and environmental standards, and human rights and other criteria. [The article makes clear that records of currency manipulation would be among them.] While no country has a perfect track record, there is a well-understood continuum of compliance, and known bad actors should be barred from the negotiating table until they’ve made proven, effective efforts to begin cleaning up their acts.”

That’s a start – and a potential wedge.

It’s also heartening to see Bernstein and Wallach emphasize “rewarding those who play by the rules” by creating and enforcing meaningful rules of origin in trade deals. As they rightly note, without such provisions, countries that have not signed various trade deals can still benefit from them because multinationals and other companies will be free to import into member countries goods largely made outside the new trade zone. That’s great of course for businesses seeking the great possible sourcing flexibility. But these practices inevitably render meaningless most of the rest of the given agreement.

And most encouraging of all – although the authors don’t mention this – an American trade policy (robustly) incorporating these features would be in violation of WTO rules. Free of a straitjacket that mandates policy uniformity in a highly diverse world, Washington would be free to choose another globalization lodestar – one that makes far more sense for a country with incomparable market power, potential for self-sufficiency, and thus unilateral leverage. A lodestar like “America First.”