Donald Trump and Trade: Another Reason to Reject Him

Last week, Donald Trump stood before an audience in Western Pennsylvania and laid out his plan for dealing with trade agreements.  Left, Right, east and west, north and south and even international observers have noted the absurdity of his proposals.  To be fair, some noted that he at least appeared to do some homework before appearing behind the teleprompted speech by releasing a position paper to journalists that included 128 footnotes from a variety of sources.

It is one thing to stand before steel workers in an aluminum plant and rail about cheap steel being dumped in the United States- an assertion not totally borne by the facts, as some have noted.  It is quite another to actually implement what he proposes since he fails to understand the effect his policies would have besides looking good before a receptive audience.

Let us start with his assertion that politicians on both sides of the aisle have pursued a policy of globalization.  Globalization is a force that politicians have little control over.  One can pursue policies to make globalization more advantageous to your country, but stopping it is like “trying to get the genie back in the bottle.”  Yes, there are certain communities hurt by the phenomena and one of the biggest concerns is wage stagnation and income inequality.  In fact, it is the latter phenomena that gives rise to dangerous populist leaders and policies.  Instead of arresting globalization, as Trump seems to suggest, perhaps the better solution is to use it to our greatest advantage.

He talked about subsidized foreign steel being dumped and politicians doing nothing about it.  That is factually false as regards the “doing nothing” part.  Actually the International Trade Administration has made determinations that dumping of steel by not only China but a host of other countries has occurred, that several foreign companies failed to cooperate in the investigation and that tariffs on one type of steel be allowed up to 450% and 520% for another type of steel used in automobiles and appliances.

Trump’s big bogeymen are NAFTA, the TPP and China.  Regarding NAFTA, he wants to re-open and renegotiate the deal because, after all, he is the master negotiator.  But he ignores that since NAFTA was passed, our trade balance has improved with 13 of 17 countries.  He ignores the fact that US exports increased 52% after NAFTA and that imports increased only 26%.  On balance, NAFTA has been a $30.2 billion annual advantage for the United States.

Citing the increase of population, he notes that the US has lost many manufacturing jobs since 1997- the year NAFTA was implemented.  However, manufacturing employment reached its high point in 1979.  NAFTA has nothing to do with the decrease in manufacturing jobs.  It has everything to do with technological advances.  Today, the United States produces more with less.  That is called efficiency.  But, Trump wants to take us back to post-Revolutionary War America when 96% of Federal revenue was derived through tariffs on imports.  Lest Mr. Trump need a refresher in 8th grade American history, tariffs were controversial even then.

He attacked Hillary Clinton on the Korean free trade deal.  Not a fan of Clinton either, but to be fair that deal was largely negotiated by the Bush administration.  His attack on the deal is based largely on a very flawed study by the liberal think tank, the Economic Policy Institute.  A second fair analysis is that the failures of that deal thus far are not attributable to the deal itself, but by weaknesses in the Korean economy.  Simply, Koreans are consuming less of everything- imported products and domestically-produced ones.  A strong dollar has also contributed.

As for the TPP, he claimed it would be the death blow for American manufacturing.  Here, he is summoning his best Bernie Sanders populist scare-mongering rhetoric.  In fact, failure to ratify the TPP would benefit one country only- China, his other bogeyman.  The TPP represents the greatest potential economic weapon the US has in Asia- the largest emerging market.  If we trade more on a more even playing field (the TPP abolishes over 18,000 tariffs on US goods), then it benefits American manufacturers and their workers.

Abdication from the TPP and non-ratification would turn the Asian market over to the Chinese.  It would be the economic equivalent to unilateral nuclear disarmament.   Trump seems to be under the mistaken impression that China is a signatory to the deal.  The fact they are NOT should be evidence enough that the TPP is a concerted effort to thwart Chinese economic designs in the Pacific.  And China is not sitting idly by.  They have their own regional economic cooperative agreement that addresses considerably less than what is in the TPP.  Why?  Because their “agreement” is more advantageous to China.  If he is serious about a “trade war” with China, the TPP is the best vehicle to wage that war.

To understand how serious this is, the Asian import market grew 261% since 2000.  However, the US market share decreased by 46%.  Only Japan fared worse.  Had the US maintained their market share, over 1.4 million manufacturing jobs would have been saved and we would have added an extra $275 billion in exports.  The math may be too complicated for Donald Trump, but facts are facts.

Finally, there are his accusations (somewhat substantiated) of currency manipulation and cheating on trade deals.  Central banks in every country manipulate currency to some degree.  China is just more open and bold about it.  Regardless, the TPP is the first free trade agreement in history to address exchange rates and currency.  Economists on both sides of the political spectrum have praised these provisions.

As for cheating on deals, trade agreements set up dispute resolution methods, not knee-jerk retaliatory unilateral actions.  Since 2009, the US has brought 20 complaints before the WTO- 11 against China alone.  And the US has prevailed 20 times.  For example:

  • an $18 billion win against the EU subsidies in the aircraft industry saving 104,000 jobs;
  • a $5 billion judgment against China over illegal taxes on US automobiles and SUVs saving 29,000 jobs;
  • illegal steel exports from China worth $250 million saving 2,000 jobs;
  • a judgment against India’s ban on US poultry imports.

Additionally, the United States has 9 pending cases before the WTO against China alone and 10 against the EU.

Trump pines for the days of tariffs.  That is his trade policy in a nutshell.  He wishes to end a phenomena he obviously knows nothing about other than what sounds good at any given moment.  The record is growing old real fast.  His proposals would return us to the days of protectionism to “make America great again.”  In reality, it would set America back decades, if not a century or two.  He could keep his proposals and 128 footnotes and just return to ripping off vendors and creditors in bankruptcy court.  If Trump wins and these policies were ever implemented, American consumers and workers would be the ultimate losers.  That makes America great again?

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