Detoxifying the Trade Debate

Real Clear Markets ^ | October 18, 2016 | Will Marshall

[expat_panama]

POLICIES FOR THE NEXT ADMINISTRATION. PART 2: TRADE

This is the second in a series on the majory policy ideas — from Left and Right — that should guide the next presidential administration's agenda. (For the opposing view, see Wilbur Ross and Peter Navarro, "The Trump Trade Doctrine: A Path to Growth & Budget Balance.")

The 2016 election seems destined to go down as the least edifying presidential contest in U.S. history. Facts, evidence, and rational argument have been routed by the visceral power of populist “narratives” drenched in cultural resentment, economic demagoguery, and tinfoil-hat paranoia.

Donald Trump’s slurs, compulsive lying, and ignorance of public issues make him by far the worst offender. Yet the other populist in the race, Sen. Bernie Sanders, did little to lift the level of debate. In a strident, one-note performance, he caricatured a visibly improving economy as a nightmare of predatory capitalism, falsely claimed the rich were hogging all the gains from growth, and indulged in old-timey socialist moralizing against profits — leaving practical voters to wonder how working Americans would be better off if their employers lost money.

The issue on which Trump and Sanders have done most to confound public understanding is the one where today’s right- and left-wing populism intersect: trade. In their telling, bad trade agreements are to blame for America’s eroding industrial might, shrinking middle-class jobs, and growing inequality. It’s all part of a conspiracy by Wall Street and corporations to globalize markets and thereby amplify their profits, even if that means allowing other countries to “steal” U.S. factory jobs.

This cartoonish tale of victims and villains tells us little about the true sources of today’s disruptive economic changes. It doesn’t account for the digital revolution, which is changing the kind of work we do and how we do it; the impact of automation on middle-skill jobs; a dearth of skilled workers in fast-growing sectors; and the slowdown in productivity growth across all the world’s advanced economies, not just ours. It also omits the inconvenient fact that America has been losing factory jobs since the 1970s — well before NAFTA and other supposedly ruinous trade pacts came along.

The populist demonization of trade, which is really a nostalgia-infused attack on economic openness and progress, will create difficulties for the next administration, no matter who wins. If it’s Trump, he will quickly discover there’s no appetite in Washington or among our trading partners — or among businesses that employ millions of Americans — for unwinding intricately detailed trade agreements forged over years of hard bargaining. And unless he wants to instigate a trade war that would tank the U.S. economy, Trump will have to renege on his vow to slap massive tariffs on Chinese and Mexican imports.

Hillary Clinton is not fundamentally anti-trade. In the heat of an unexpectedly tough primary challenge from Sanders, however, she repudiated her previous support for the Transpacific Trade Partnership (TPP), one of President Obama’s top priorities. To be fair, she’s hardly the first Democrat to throw trade overboard to appease labor and anti-globalization activists. Obama promised to renegotiate NAFTA on the stump in 2008, but quietly dropped the idea after he’d won. At any rate, Clinton’s awkward flip on TPP — after calling it the “gold standard” of trade agreements — may have done her more harm than good by reinforcing doubts about her trustworthiness.

If Clinton wins, Congress could take this hot potato off her plate by passing TPP in the post-election lame duck session. Otherwise, Clinton will eventually have to find a way to get the agreement back on track, as a matter of national interest. Having served as Obama’s first Secretary of State, she knows that TPP isn’t just a commercial deal; it’s also integral to America’s strategy of constructing a new balance of power in Asia. The with 11 Pacific Rim nations would create a vast liberal trading zone encompassing 40 percent of the world’s GDP — formidable counterweight to China’s growing economic might. If Washington lets TPP die, U.S. credibility and influence in the region will plunge and Beijing will set the rules of trade in Asia.

In addition to its geopolitical significance, TPP would lower tariffs and administrative barriers on U.S. products, raise environmental and labor standards in emerging markets such as Malaysia and Vietnam, and make it easier for small U.S. firms and entrepreneurs to sell into global markets. That’s critical as the locus of global demand shifts from U.S. consumers to Asia, which is expected to add two billion new middle class consumers over the next 15 years. This means growing demand for the products and services that American companies excel at producing, including digital technology, advanced materials and high-end manufacturing (such as 3-D printers), wholesome foods, modern financial services, and innovative medical devices and treatments.

All this makes TPP, in particular, and trade, in general, central to what will surely be the next president’s top priority: sustaining an economic recovery that is finally starting to reach average working families. Last year, median household income rose by more than 5 percent, the fastest growth on record. While incomes rose across the board, middle- and lower-income families saw the largest gains. The economy lifted 3.5 million people out of poverty, including about one million children.

Such broad gains belie populist claims that the U.S. economy is a “disaster” (Trump) or a game rigged by the “billionaire class” against the working class (Sanders). They remind us that more robust economic growth is necessary, if not entirely sufficient, to return America to shared prosperity.

As President Obama understands — and as all U.S. presidents going back to FDR understood — open trade is a powerful stimulant for economic innovation and job growth here and abroad. That’s why he signed three bilateral free-trade treaties initiated by his Republican predecessor, and why he’s pushing for ambitious multilateral agreements in Asia and Europe, as well as pacts for lowering barriers to trade in services and information technology. The disinformation war populists are waging against trade in this election cycle will make it harder for his successor to move such far-sighted initiatives across the finish line.

In fact, left-wing populists already are trying to turn Democrats into a party that sounds more like Trump than Obama on trade. Having failed to insert an anti-TPP plank in the party’s platform, they are now pressuring elected Democrats to block any attempt to bring TPP for a vote after the election. Evidently, they want to make dogmatic opposition to trade a Democratic version of the GOP’s notorious “no tax” pledge, which has paralyzed fiscal reform in Washington.

This would drive a wedge into a Democratic coalition that is fairly evenly balanced between moderates and liberals. Populists insist that trashing trade agreements will “energize the base.” But the question is, whose base? The voters most moved by such rhetoric are mostly Trump voters: white, non-college educated men and women who have been voting Republican in national elections since the 1980s. The Democratic base is more diverse, younger, more urban — and more favorably inclined toward trade.

In a survey by pollster Peter Broadnitz for the Progressive Policy Institute, Democratic voters backed new, high-standard trade deals by a margin of 66–25. And the swing voters who ultimately decide elections also support trade, by 55–32 percent. These results jibe with findings from recent Pew polls. When asked whether trade agreements have been good for America, Democrats and Democratic-leaning voters agreed by 56–34 percent. Interestingly, millennials — the backbone of Sanders’ support — were even more supportive (67 percent).

These findings refute the biggest populist myth of all: that the “people” are rising in righteous wrath against elites who have foisted trade agreements on them to advance their sinister globalization project. Actually, it’s anti-trade activists, not pro-growth Democrats, who are out of touch with the party’s grassroots.

In fact, college-educated whites and young voters, not factory workers, are the key targets of opportunity for Democrats in 2016 and beyond. A majority of whites with college degrees say Trump is not qualified to be president, while 65 percent say Clinton is. Instead of echoing Trump’s bellicose rhetoric on trade, Democrats should be aiming a hopeful, pro-growth message at aspirational voters across the political spectrum, including independents, college-educated suburban moderates, and a substantial slice of Republicans who can’t abide Trump.

There’s no disagreement among progressives that working families have borne the brunt of the nation’s disappointing economic performance since 2000. Some have lost jobs to trade (though more manufacturing jobs are supported by exports). Many more have been automated out of their jobs. Job prospects for people with no more than high school education have gotten dimmer. And the nation’s leaders have done a poor job of helping them adjust to new economic conditions.

But embracing protectionism and making fanciful promises to “bring back” yesterday’s jobs is the wrong way to show solidarity with working families. Democrats are never going to “out demagogue” Trump on trade. The right way to help working families is to revive U.S. economic dynamism and productivity growth and ensure that everyone has access to affordable education, housing, health care, and more focused and effective job training.

Just how to do that is a debate worth having, but it will only happen if voters decisively reject anti-trade populism in November.

Will Marshall is President of the Progressive Policy Institute.

[cba123]

Trump is the first leader in America, in over one entire generation, who is for rebuilding our own country once again.

The only one.

Anywhere.

[ModelBreaker]

Interesting look into left-wing, ruling class minds. The ruling class does not understand conservative objections to things like TPP, which is that it transfers power and authority over Americans to unelected, international governing bodies.

This was the core problem with Law of the Sea and why it could not muster Senate ratification. LOST actually began the process of giving international governing bodies a revenue stream that was independent of donations by nation states—a dream of internationalists for a century.

The globalists cannot resist munging “free trade” together with a global governance infrastructure. The failure of LOST is why they made this a trade “agreement” that did not need constitutional Senate ratification.

[ClearCase_guy]

This is globalist claptrap. Economic Nationalism is what is needed. Our country needs to come out ahead and we need regulatory reform, tax reform, and new trade deals so that we can actively compete in the world.

The globalist plan simply lowers our standard of living until we are no better than Mexico or China or wherever. That’s NOT a good goal. Unless, of course, you’re at the top and seek to directly benefit from paying people peanuts.

[expat_panama]

 

Happy mid-week everyone!  Yesterday our "Uptrend Under Pressure" bounced up off longer term support yesterday in rising volume.  While this really is a nice sign it's off a low point and we're still not back up over our traditional 50-day moving average.

This morning's futures traders are happy tho. they got stocks up +0.42%, they got metals up +0.40% too and gold/silver prices still seem stable.

Today's reports seem safe enough--

7:00 AM MBA Mortgage Index
8:30 AM Housing Starts
8:30 AM Building Permits
10:30 AM Crude Inventories
2:00 PM Fed's Beige Book

--but I'm looking forward to getting in trouble post these on the FR:

China's Uncannily Stable Growth vs The Price of Reform - The Economist
A Better Name for GDP? Grossly Defective Product - Paul Wallace, Reuters
Why 27 Million In US Are Still Uninsured Under Obamacare - Bloomberg
The United States Has Its Own 'Oil Curse' - Ellie Ismailidou, MarketWatch
Fed Damned If It Does, Damned If It Doesn't - A. Mirhaydari, Fiscal Times
Please, Stop Comparing 2016 Stock Market to 1987 - William Watts, MW
Rex Sinquefield's Trump Support Is About 1 Thing - Julia La Roche, Yahoo
Investment Implications of a Clinton Presidency - David Bahnsen, Forbes

[wastoute]

I still say the economic rationalization for allowing manufacturing jobs to go offshore was that “new, better jobs” would take their place. Obviously that second bit failed to happen.

Agreed, it did start to happen before NAFTA. As a young man I was a machinist in a factory. I made $20,000 gross the year I quit to go to Med School. We had health benefits BC/BS with Equitable to pick up the deductible and copay. We had $1,500 per family member per year dental. We had two pairs of glasses per year per family member.

By the time I finished Med School a new factory in Japan had our small size business and a CNC factory in Conn. had our large size business. The guys I had worked with we’re lucky to find jobs at minimum wage (1/4th what we had made) AND NO BENEFITS. By the early 80s a large swath of formerly productive America that had once been the manufacturing heart of the world was called “the Rust Belt”.

There were a number of reasons discussed but the bottom line was, well the bottom line. Labor was cheaper “over there”. But why was this so? In heavy industry automation was part of it, certainly CNC revolutionized the machine tool industry. Why were such industries not given depreciation allowances and incentives to automate here? We had an administration that “acted globally”. We gave away the Panama Canal. We gave away our jobs to “help lift the world”.

And then during the 90s we gave away what was left because they were “buggy whip” jobs and we were going to get new jobs that hadn’t even been invented yet (making Unicorn bridles?). The new jobs turned out to be stocking shelves at WalMart. The economy was dominated by large retail businesses that made more money selling shares than products. Financial “services” that turned out to be worse than gambling but financial IEDs. The balloon vented a bit in 2000 but we “powered through” the 911 catastrophe by “going shopping”. So the balloon just began filling up once more. Congress was informed in that “secret meeting” in Feb. 2007 that the balloon had to be vented again. Remember that? The only time in HISTORY that congresscriminals ever kept a secret.

Well the balloon has been filling up again, folks. You might want to consider getting ready. Just my opinion, of course. Free advice and all. I confess I have not made billions buying shares. I did buy mutual funds for several decades. Instead of watching stock prices I spent several decades carefully WATCHING THE GUMMINT. In 25 years I did not make a fortune BUT I NEVER LOST A DIME.

It ain’t how much you make. It is how much you keep. And you ain’t made it until it has been turned back into cash.

[bert]

Regarding China’s growth, I will interject the info in a recent Forbes article on the Pearl River Delta. Excluding Macau and Hong Kong that lie on either side of the river, the region includes 9 cities. They have grown together over a period beginning in say 1990, to include an area equal to that of Vermont and New Hampshire. The 2014 population of this area in 2014 had grown to 68 million people.

Standing alone, the PRD is the thirteenth largest economy in the world. It surpasses Russia in $$ volume.

[Will88]

It also omits the inconvenient fact that America has been losing factory jobs since the 1970s — well before NAFTA and other supposedly ruinous trade pacts came along.

Of course, there were a series of trade negotiation rounds before NAFTA that lowered or eliminated tariffs on many goods, putting US workers in competition with the world's cheapest labor, as well as making it very profitable for large US corporations to move production to cheap labor nations and export to the US market.

NAFTA was not the first trade arrangement to benefit Mexico and cause the relocation of US plants to take advantage of cheap labar.

In 1964, the Bracero Program, which allowed Mexican agricultural workers to work legally in the U.S. on a seasonal basis, came to an end. Less than a year after the end of the Bracero Program, the Mexican Government launched the Border Industrialization Program (BIP) or the Maquiladora Program, to solve the problem of rising unemployment along the border.[2] The maquiladoras became attractive to US firms due to the availability of cheap labor, devaluations of the peso and favorable changes in US customs laws.[citation needed] In 1985, maquiladoras overtook tourism as the largest source of foreign exchange, and since 1996 they have been the second largest industry in Mexico behind the petroleum industry.[3]

Maquiladora

Who can remember when televisions and radios and tape recorders, the electronics of the '50s and '60s were all made in the USA? Then we had a few changes of tariffs and trade policies, and suddenly, they were most all made in Japan.

All the losses of manufacturing jobs and relocation of US production to cheap labor nations was caused by changes in US government policies.

[Will88]

Some have lost jobs to trade (though more manufacturing jobs are supported by exports). Many more have been automated out of their jobs.

The globalists love that explanation. It sort of lets them off the hook for all manufacturing job losses in the US. But has anyone seen a single objective study that substantiates that claim?

[RedStateRocker]

It is interesting that there is as much, or more, dislike of TPP on the left as on the right.

[Gritty]

Facts, evidence, and rational argument have been routed by the visceral power of populist “narratives” drenched in cultural resentment, economic demagoguery, and tinfoil-hat paranoia.

Donald Trump’s slurs, compulsive lying, and ignorance of public issues make him by far the worst offender.

Will Marshall is President of the Progressive Policy Institute.

What a bullscat article! I felt like all I was doing was reading DNC talking points taken straight from Das Kapital.

[Wolfie]

One of our most valuable assets (if not THE most valuable asset) is access to the our markets. It’s simple...if you want access you pay. If you move manufacturing overseas and give American jobs to foreigners, you pay to get your products into the U.S.

[Buckeye McFrog]

Should have thought about “detoxifying” the debate before they spent thirty friggin years LYING to people in the Rust Belt about how great it was all gonna be.

[citizen]

My first radio of my own was a new GE transistor radio. Cost $5.99 in the early 60s and used 2 AA batteries. Worked great for years. It probably would have lasted a lot longer but with me being a kid it got dropped a lot, things spilled on it and in it.

A few years later my dad bought me a great AM-FM-SW radio, also made by GE. It was bad for the day (at least to me!) Used 6 D-cell batteries and had a 6-foot antenna. Also had an AC power cord. Loved it.

[semimojo]

One of our most valuable assets (if not THE most valuable asset) is access to the our markets. It’s simple...if you want access you pay.

Access to the our market is valuable, but the vast majority of potential consumers are outside the US.

The American companies who count on providing goods and services to these consumers will only be hurt by protectionism.

Long term economic growth will be much greater if we engage the world instead of hiding behind barriers.

[Wolfie]

We’ve been “engaged” for decades. So when does the economic growth start?

[semimojo]

We export over $2T in goods and services each year.

What would things look like if we took that out of the economy?

[Will88]

My first radio of my own was a new GE transistor radio.

In my early teens I had a Philco transistor radio made in the USA. I got a new one at Christmas or HS graduation and it was a Sony made in Japan.

A huge percentage of electronics production moved to Japan in a very few years. In the '50s and '60s Japan was cheap labor until they revived their economy, and soon started their massive exports of electronics and autos and other products.

[Will88]

We export over $2T in goods and services each year.

What would things look like if we took that out of the economy?

What would things look like if we produced domestically a significant amount of the $2.75 trillion in imported goods and services?

[semimojo]

What would things look like if we produced domestically a significant amount of the $2.75 trillion in imported goods and services?

Interesting question. Among other things our overall standard of living would be lower because we would be spending more for the same goods than we do now, and the people who today produce the $2T in exports would be out of work because it's folly to think we can continue to export if we block imports.