Clinton and Trump are Both Wrong on Trade

The political conventions are finally over. It seems time to begin to assess the candidates competing for the Presidency of the United States. The first issue I am going to write about is one that the candidates seem to agree on though both are wrong – International Trade!

Trump and Clinton each claim to be against the Trans-Pacific Partnership (TPP) trade deal for example, though Clinton was originally in favor of it before she is now against it! Clinton’s current position seems to driven by her recognition that a large percentage of Americans, especially the Democratic base, think international trade is the cause of loss of high paying manufacturing jobs. I am certain she knows better. I do wish though that she would deal with the facts instead of perpetuating the myth! I can only hope that if she is elected she will behave differently from her campaign rhetoric.

Trump is much more aggressive than Clinton on trade issues. He talks about slapping 45% tariffs on Chinese goods to bring jobs back to America. He is also extremely vocal about trade imbalances as though that were a major source of job losses. He says Mexico will pay for his infamous wall from the favorable trade balance it currently enjoys with the US. Unlike Clinton I can easily believe he is too ignorant to know better than his rhetoric. That makes him especially dangerous since initiating unwarranted and destructive tariffs may actually be within the President’s constitutional prerogative with or without the consent of Congress.

It is time for a bit of reality therapy regarding international trade. I am not a free trader per se, however I know that international trade is not our enemy. It is not the killer of manufacturing jobs Trump, and to a lessor degree, Clinton would have you believe. The reality is that international trade is a huge benefit to the US economy in general and creates thousands of jobs for skilled working Americans.

Historically Republicans (except Trump!!!) have been wedded to unlimited free trade as a core political philosophy. It’s good for business after all they say! Democrats have been philosophically against free trade. It weakens labor unions and costs jobs their argument goes. Both positions are too extreme for my taste. But a milder version of the Republican argument is more in American interests than the isolationist rhetoric we are hearing from both candidates. If we shun broad based international trading arrangements other countries will make agreements among themselves and the US will be at an economic disadvantage.

An example of that disadvantage played out in 2012 when Audi decided to build a new automobile plant in Mexico instead of Tennessee. Their decision was not driven by labor costs but by the fact that Mexico had more favorable trading arrangements with Audi’s intended foreign markets.

International trade does create “churn” in the economy as low skilled manual labor production shifts to other countries. We need to face that. Textile manufacturing workers for example have been hard hit by reduced trade barriers. They have been displaced in this country by substitute production in other countries with vast labor pools of unskilled workers.

It is understandable that if you are a textile worker loss of your job represents a family crisis. Generally however, most of those lost jobs never were high paying in the first place, at least not by Ohio or Michigan standards. And callous as it may seem far more Americans benefit from lower prices for clothes, furniture and other similar goods than suffer from those job losses. It’s just not the same Americans that are benefiting and losing!

Trump claims as a result of trade, “We don’t make anything anymore!” The fact is that with the exception of 2007-2009 manufacturing output in the US has grown virtually every year for the past 7 decades. Today good US jobs created in part by international demand for high tech products America produces are actually going unfilled for lack of qualified workers. A high school education is just no longer enough to assure good jobs in American manufacturing or for that matter in any US labor sector, or even in other industrialized foreign countries. More education or other specialized training and skills are required.

So if international trade is not killing good blue collar jobs, what is? The answer is simple!! Upwards of 90% of the high paying but low skilled jobs that people are pining for have been replaced by automation. Today “intelligent” machines do the unskilled assembly and other manual labor jobs that once were the “bread and butter” of Detroit and other industrial cities. Those jobs are gone forever. They did not go overseas and they are not coming back regardless of what trade policy Clinton or Trump implements.

And finally there is the trade imbalance that Trump rants about. Trade balance is a complex subject that is not generally understood by Americans. It is getting far too much unwarranted attention these days by Trump and “his” media. That detracts from significant economic issues that should be discussed instead.

Unfortunately trade balance is easily depicted in simple graphs that can be made to look ominous. As a result politicians can use it to manipulate the public to believe whatever spin they want to put on it. Trump of course says it is at the heart of everything that is wrong with international trade.

Reality is a bit different though. For example there appears to be virtually no correlation between a negative trade balance and job losses. Australia for example has had a net negative trade balance for longer than the US has but with no apparent economic or job ill effects. Japan on the other hand has had a strong positive trade balance for the past 30 years while hosting a stagnant economy. At times Japan has even suffered economic deflation in spite of that large positive trade balance. The other interesting fact is that in the US the negative trade imbalance seems to increase during periods of US job growth and decrease when job growth wanes. That is the reverse of what Trump would like you to believe.

The bottom line of all this gibberish is that international trade is not the source of our economic and job woes. It is not even a significant portion of the problem. It does press American workers to adapt to evolving economic reality though. It is clear that in industrialized economies like ours, education and training are the critical elements for finding and keeping well paying jobs.

There is virtually zero growth in high paying but low skilled jobs, and there never will be material growth again. The only exception to that may be if the federal government undertakes a gigantic investment in rebuilding national infrastructure. Even then that will not last more than a few years – perhaps just long enough for blue collar workers to gain the additional training and skills they need to achieve and maintain middle-class economic status in the twenty-first century.

If the candidates truly want to make high paying jobs available to more Americans they should stop talking about bringing those jobs back to America from overseas. They are already here now and going unfilled. Much of the workforce just does not have the skills to qualify for them. The candidates’ focus should be on proposing more imaginative federal programs that would encourage and support additional education and training. That is the only formula for high paying jobs to become available to blue collar but currently low skilled workers.

If you disagree with me or are uncertain I encourage you to do a bit of research yourself. There are multiple sources of high quality information on the subject of international trade as it relates to jobs. There are also massive amounts of politically motivated misinformation so you have to select carefully. The best sources are nonpartisan of course. University studies are usually a good source. Most “think tanks” are not because they are normally biased toward a particular political philosophy.

Two sources I will offer as a place to start: I recommend a book called “Free Trade Under Fire” by professor Douglas Irwin of Dartmouth College. I do not agree with him on all issues but in my view he does a good job of laying out the case for international trade. A second source is a white paper called “The Myth and Reality of Manufacturing in America” from the Center for Business and Economic Research at Ball State University. I like that particular paper because it presents factual information and statistics in relatively easy to understand language and graphical representations. I caution you though that the key operative word here is “relatively”! International trade is a complex subject that economists can spend entire careers studying. One paper won’t make you an expert! And remember these are just a couple of suggested starting points. Of course because I am recommending them they mostly match my views. You need to pick additional sources you are comfortable with.

I may write more on this subject later!

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