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.