Trump Opponents Offer no Solution for Trade Deficit

A big part of U.S. trade deficit is in cars

As you might expect, President Trump’s new tariffs on steel and aluminum are as carefully thought out as his reasons to build a wall on the Mexican border. They are announced with all the bluster and bullying of the man who wants to kick Dreamers out of the country. Take note, however, of what his opponents on this issue – both Republicans and leading Democrats – do not say.

They refuse to acknowledge that our trade deficit, an enormous $566 billion in 2017, is a problem that should be addressed. The next time you read an article about the trade deficit, note that most attacks on the President’s new policy center around the theoretical, yet simplistic argument that every country benefits from the free exchange of goods – i.e. Free Trade. They use examples like one farmer raises cows and trades his milk to another farmer who raises wheat. Anyone who uses a child-like example like this to explain international trade to you is insulting your intelligence.

Why is the trade deficit a problem? In 2014, the U.S. Commerce Department estimated that every $1 billion in U.S. exports creates about 6,000 jobs, most of them in manufacturing. This is good because manufacturing jobs pay an average of 20% more than service sector jobs. These high paying jobs support what is left of our blue collar middle class – people without a post high school education who were able to gain middle class status in the prosperous years after WWII.

However, by the same measurement standard, the $500 billion trade deficit in 2014 meant that there were three million high paying jobs that did not exist, mostly in manufacturing, in the United States. Using a conservative multiplier effect of 1:1, it also meant that about three million, good-paying jobs in parts production and manufacturing services also did not exist.

The political consequences of this manufacturing job gap become clear when you realize that the great majority of those jobs were at one time in the industrial mid-west. This includes the states of Pennsylvania, Ohio, Michigan, Wisconsin, and Iowa – the states Obama won in 2012 and that Trump captured, often by small margins, in 2016. In fact, this political calculation heavily influenced his tariff decisions:

“The president also boasted to outside advisers that he knew the tariffs issue better than his advisers and suggested that the move could help him lock up Rust Belt states like Pennsylvania, Ohio and Michigan again, according to a person familiar with the president’s thinking but not authorized to publicly discuss private conversations.”

Sure enough, when Trump campaigned on Saturday, March 10, in Pennsylvania for the embattled Republican Congressional candidate in a special election, he highlighted his tariff decision. “Not all of our friends on Wall Street love it, but we love it.” He also made sure that the 17,000 steelworkers in Pennsylvania’s 18th Congressional district knew that Democratic leaders in Congress opposed his tariff policies.

On the next blog post, we will examine where the idea of Free Trade came from and whether it is an accurate guide for trade policy in the 2000s.

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5 thoughts on “Trump Opponents Offer no Solution for Trade Deficit”

  1. Thank you so much, Monte. Please hurry up and write the next free trade blog article. I have been at a loss to understand what is really going on. I love your basic clear explanations that are a good match for my limited grasp of this situation!
    Martha

    1. OK, will do. The topic is very complex and yet loaded with emotional rhetoric that doesn’t really help you understand what is at stake.

  2. What is galling is that Trump has hijacked this issue from the Democrats (or at least the left wing of the Democratic Party). The Democrats who question the free trade mantra do not have a clear message (same as it ever was) on what is good and what is bad about trade. No one is focusing on the failure to enforce the environmental and labor standards such as they are.

    As you yourself have said in your book the U.S. has always sacrificed trade imbalances and violations on the altar of security issues and the war on terrorism. If there is a clear message out there somewhere it’s not getting any media play. Do you know of one?

    1. The dominance of Free Trade theory is revealed as you observe the bi-partisan blasts at Trump’s tariffs. Bernie Sanders, who is barely a Democrat, is the only national politician I know who speaks against trade deficits. It is possible the progressive caucus in the House supports changes, but the national media is careful to ignore them. The Institute for Economic Policy (IEP) is supported by labor unions and is the only think tank I know of that points out the flaws in Free Trade.

    2. Sorry I missed this earlier. Bernie Sanders is the only Democrat I know of that is not mostly a Free Trade guy. Not a lot of intellectuals on this, but I did find an article on Politico with some good trade suggestions. Will write them up soon.

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