By Kurt Couchman
The Trump administration blames international trade for America’s job woes. It’s the wrong target. The White House and Congress should create opportunity, not disrupt it.
In April, White House aides drafted an executive order to withdraw the United States from the North American Free Trade Agreement (NAFTA), which would interfere with cross-border supply chains and other mutually beneficial commercial exchanges. President Trump didn’t sign it but didn’t reject the possibility. Indeed, this month’s demands on Mexico and Canada over NAFTA seem one-sided and a dangerous gamble.
He has, however, backed out of the Trans Pacific Partnership (TPP); picked a trade fight with our closest trading partner, Canada; and strong-armed South Korea into renegotiating the Korea-United States (KORUS) Free Trade Agreement.
Unilateral trade restrictions have significant downsides, especially for consumers of the target products. For example, global oversupply of steel and aluminum reduces input costs for aircraft, automobiles, machinery, buildings, infrastructure, and more. All interests must be considered to chart the best path forward, not just those facing increased competition.
Sudden changes in trade patterns are disruptive. In our interconnected world, supply chains are complicated and dispersed. Trade agreements reduce artificial, political barriers to free exchange, expanding the possibilities for people to serve each other better.
Expanding government intervention on voluntary transactions is not productive, and it's certainly not conservative. Free trade is nothing more than the government staying out of the affairs of people cooperating across political borders.
International commerce can reduce prices and increase quality for consumer goods and services—not to mention inputs for businesses—while providing greater export opportunities for competitive producers. Trade brings people closer together, spreading ideas as much as exchanging goods and services. It may even reduce international conflict by raising the stakes of fighting with each other.
Changing patterns of trade creates challenges for many Americans, of course. I grew up in a manufacturing town in Pennsylvania—a wonderful state with a middling business climate—and it’s seen a lot of job losses as production moved abroad and to other states.
Increasing automation may be even more potent, however. Computer-guided, precision manufacturing requires fewer workers to produce more output. Adjusted for inflation, manufacturing output grew by 85% from the beginning of 1987 to the beginning of 2008. Recovery from the Great Recession was sluggish, but total production now exceeds the 2008 peak. Yet manufacturing employment has dropped from 17.5 million in March 1987 to 12.4 million in March 2017. The average manufacturing worker produces more than 2.5 times what his or her counterpart did 30 years ago.
Globalization doesn’t affect Americans equally. More competitive international markets have boosted incomes of relatively scarce, highly-skilled people all around the world, especially those insulated from competition by licensing or other regulatory privileges. It has also expanded opportunities for lower-skilled workers in developing countries. Since China’s modernization began in 1979, for example, Chinese production per person has rocketed from $210 per year to more than $8,000, a nearly 40-fold increase.
It has, however, exposed lower-skilled workers in advanced economies to more competition with foreign laborers. Their income hasn’t grown as fast as some of their neighbors even as the costs of life’s necessities have grown. Anger and frustration have finally broken through to the political class, but so far only as a demand for action, not as a productive and detailed reform agenda.
Reversing globalization shouldn’t be part of the agenda. Trying would be disruptive, destructive, and possibly disastrous. The “protectionist” Smoot-Hawley Tariff Act of 1930 was a key factor in turning a bad recession into the Great Depression.
The only sensible approach is to fix the domestic policies that make Americans worse off, especially those being left behind. President Trump’s domestic focus has been to reduce government burdens, such as on energy production and now through tax reform. That’s the right way to create prosperity.
Nearly everything that regular people buy costs more because of government intervention: health care, housing, education, and even food and drink.
Congress, states, and local governments tend to subsidize consumption while making it harder or more expensive to serve that demand. That lets politicians provide benefits to organized, concentrated interest groups on both sides. Subsidizing demand and restricting supply boosts prices without necessarily increasing available goods and services. Destructive financial services, housing, health care, education, and tax policies as well as the inability to budget responsibly all reduce prosperity.
These burdens are not equally shared. They often fall hardest on lower-skilled workers, especially when policies end up enriching well-organized special interests.
Politicians usually fear taking on powerful interests who defend the status quo. But people are angry and fearful enough that bold action is not simply possible, but expected. People are sick of being left behind, they’re sick of special treatment for insiders with connections, and they’re especially sick of a political class that focuses on self-perpetuation instead of serving the people.
In addition to making life’s necessities more affordable for Americans, Congress must allow opportunity to flourish. If globalization and automation have had uneven impacts, sectors that employ those being left behind should get priority for relief from the heavy hand of the administrative state.
Americans are understandably shaken by changes over the last few decades. Politicians might be cautious about expanding trade relations in the current political climate, but they shouldn’t harm the people they represent with ill-advised trade restrictions. Instead, they should focus on fixing the domestic business climate so high-quality goods and services are affordable and available while unleashing opportunity for those who need it most.
Kurt Couchman is an economist and the vice president of public policy at Defense Priorities. He previously served as a policy expert in congressional offices, most recently as a legislative director for a Republican member of the House of Representatives. Follow him on Twitter @KurtCouchman.
This piece was originally published by The Hill on November 3, 2017. Read more HERE.