Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Globalism and its Discontents
Donald Trump yesterday made one aspect of his platform entirely unambiguous: He is against free trade. The full transcript of his speech is here. He draws a dichotomy between “globalism” and “Americanism,” and in his view, globalism — or free trade — is unAmerican.
This is how he understands recent American economic history:
America has lost nearly one-third of its manufacturing jobs since 1997 – even as the country has increased its population by 50 million people.
At the center of this catastrophe are two trade deals pushed by Bill and Hillary Clinton.
First, the North American Free Trade Agreement, or NAFTA. Second, China’s entry into the World Trade Organization.
NAFTA was the worst trade deal in history, and China’s entrance into the World Trade Organization has enabled the greatest jobs theft in history.
In his view, “massive trade deficits subtract directly from our Gross Domestic Product,” and the TPP would not only “undermine our economy, but it will undermine our independence,” because it “creates a new international commission that makes decisions the American people can’t veto.”
And here are his proposals to fix this:
One: I am going to withdraw the United States from the Trans-Pacific Partnership, which has not yet been ratified.
Two: I’m going to appoint the toughest and smartest trade negotiators to fight on behalf of American workers.
Three: I’m going to direct the Secretary of Commerce to identify every violation of trade agreements a foreign country is currently using to harm our workers. I will then direct all appropriate agencies to use every tool under American and international law to end these abuses.
Four: I’m going tell our NAFTA partners that I intend to immediately renegotiate the terms of that agreement to get a better deal for our workers. And I don’t mean just a little bit better, I mean a lot better. If they do not agree to a renegotiation, then I will submit notice under Article 2205 of the NAFTA agreement that America intends to withdraw from the deal.
Five: I am going to instruct my Treasury Secretary to label China a currency manipulator. Any country that devalues their currency in order to take advantage of the United States will be met with sharply
Six: I am going to instruct the U.S. Trade Representative to bring trade cases against China, both in this country and at the WTO. China’s unfair subsidy behavior is prohibited by the terms of its entrance to the WTO, and I intend to enforce those rules.
Seven: If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful presidential power to remedy trade disputes, including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.
He calls for what sounds like central planning to boost and support the steel and energy industries, although it’s not clear that what mechanism he proposes to ensure we only use American steel; perhaps he thinks it will happen on its own:
A Trump Administration will also ensure that we start using American steel for American infrastructure.
Just like the American steel from Pennsylvania that built the Empire State building.
It will be American steel that will fortify America’s crumbling bridges.
It will be American steel that sends our skyscrapers soaring into the sky.
It will be American steel that rebuilds our inner cities.
It will be American hands that remake this country, and it will be American energy – mined from American resources – that powers this country.
Trump clearly doesn’t adhere to the neoliberal consensus.
The word “neoliberal” is almost always used disparagingly, but I use it here to refer to the policies introduced by Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. In Neoliberalism: The Genesis of a Political Swearword, Oliver Marc Hartwich describes the critics of neoliberalism thus:
In any case, it is a curious alliance that has committed to fighting neoliberalism: Religious leaders and artists, environmental activists and globalisation critics, politicians of the left and the right as well as trade unionists, commentators and academics. They all share a passion to unmask neoliberalism as an inhuman, antisocial, and potentially misanthropic ideology or as a cynical exercise by strangely anonymous forces that wish to exploit the world to their own advantage.
It’s unusual, to say the least, for a GOP presidential candidate to embrace these views.
At this point, experts will interrupt to say, “But these proposals are insane. They will cause a recession.” You can read what the experts have to say, for example, in the Washington Post:
An economic model of Trump’s proposals, prepared by Moody’s Analytics at the request of The Washington Post, suggests Trump is half-right about his plans. They would, in fact, sock it to China and Mexico. Both would fall into recession, the model suggests, if Trump levied his proposed tariffs and those countries retaliated with tariffs of their own.
Unfortunately, the United States would fall into recession, too. Up to 4 million American workers would lose their jobs. Another 3 million jobs would not be created that otherwise would have been, had the country not fallen into a trade-induced downturn.
It’s safe to say that Trump’s response would be much like Michael Gove’s: “People in this country have had enough of experts.” After all, what else could he say?
We actually know what happens when we try to protect the steel industry. Bush tried it in 2002. His administration levied tariffs on imported steel. It saved 1,700 steelworkers’ jobs. But as Walter E. Williams puts it in Investor’s Business Daily, it would have been cheaper to tax ourselves and give each of those 1,700 steelworkers a $100,000 annual check:
[S]teel-users — such as the U.S. auto industry, its suppliers, heavy construction equipment manufacturers and others — were harmed by higher steel prices.
It is estimated that the steel tariffs caused at least 4,500 job losses in no fewer than 16 states, with more than 19,000 jobs lost in California, 16,000 in Texas and about 10,000 each in Ohio, Michigan and Illinois.
In other words, industries that use steel were forced to pay higher prices, causing them to have to raise prices on what they produced. As a result, they became less competitive in both domestic and international markets and thus had to lay off workers.
Within three years, Trump’s proposals would — in both the expert and my inexpert view — cause the US economy to shrink by 4.6 percent and the unemployment rate to double. Insofar as they’d also cause a recession in our trading partners, they’d further destabilize whatever fragile world order is left.
Was NAFTA “the worst trade deal in history?” Hardly. It’s true that unskilled American workers have received an increasingly raw deal since the 1970s. But NAFTA’s not to blame. After NAFTA entered into force, trade with Canada and Mexico nearly quadrupled. Canada and Mexico buy more than a third of US merchandise exports. It’s actually been the most beneficial trade agreement in US history, apart from the Uruguay Round agreement that created the World Trade Organization. According to the Peterson Institute for International Economics, NAFTA’s been worth a gain in annual income of about $10,000 per household.
But they’re experts, and we’re sick of experts.
Waving the trade deficit around as if it means something is absurd. The United States has registered trade surpluses with its NAFTA partners in manufactured goods and services. The deficit is owed to our petroleum imports from Canada and Mexico, which stem from geology, not NAFTA.
The gold-standard model used by economists to measure the employment effects of trade agreements is a computable general equilibrium model called Global Trade Analysis Project. Developed in the early 1990s, it’s maintained by a consortium of more than 30 American and international organizations, including the US International Trade Commission, the World Trade Organization, the World Bank, and half a dozen US government agencies. Joseph Francois and Laura M. Baughman used the model to assess the impact of our Free Trade Agreements in a paper called Opening Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners. Among their findings:
- We find that in recent years the services provisions of the NAFTA have translated into a 13.3 percent reduction in cost savings for U.S. services exporters. This means that, where it would have cost $100 to sell a service to NAFTA partners before the agreement went in effect, it now costs $86.70 to sell the same service at the same price. For other FTA partners, we estimate an average cost saving of 8.5 percent.
- We find that because of this trade, U.S. GDP was 7.2 percent higher than it would have been otherwise — $1.0 trillion. In other words, goods and services trade with the 14 FTA countries generated net U.S. output gains worth $1 trillion in 2008. Furthermore, total U.S. exports of goods and services to the world are $462.7 billion higher than they otherwise would be because we trade with these countries. Finally, out of the total number of jobs in the U.S. economy in 2008 and the wages they paid to workers, trade with the FTA partners supported 17.7 million of those U.S. jobs. These jobs are spread across the range of U.S. industries. These higher levels of output, trade, and employment were made possible by the benefits of trading with the 14 FTA partner countries.
- We find that the FTAs in 2008 generated $304.5 billion in U.S. output, or 2.1 percent of U.S. GDP. They expanded total U.S. exports of goods and services to the world by $462.7 billion. Finally, they supported 5.4 million U.S. jobs. This is output, exports and employment that would not exist in the absence of the 2008 FTAs (fully implemented in some cases, partially implemented in others).
- FTA-induced trade with Canada, an important U.S. trading partner and an integral part of the North American manufacturing based, is estimated to have brought roughly 60 percent of overall FTA labor market and output gains from trade … Mexican trade brings with it an additional one-third of the overall gains. The fact that much of the NAFTA trade involves trade at intermediate stages of processing also means that the gains from NAFTA trade are larger, relative to the impact on trade itself, than is the case with other FTA partners.
But they’re experts and we’re sick of experts.
I’m open to the argument that our social stability has been jeopardized by the loss of unskilled jobs, and the federal government must therefore step in to create them artificially. Something is obviously very wrong, after all: If it weren’t, Trump would not be the presumptive GOP nominee. But if we want the government to do create unskilled jobs, this is not the way to do it. The US is in need of upgraded infrastructure. The jobs required to rebuild our infrastructure can’t be exported. A massive state-run program to rebuild that infrastructure would be less damaging than a trade war. Or just redistribute income, full stop: Buy off the underclass in exchange for social harmony. It would cost less than a trade war.
Anything but this — this plan is advanced insanity.
Published in General
Claire –
There is just way too much evidence out there that the “experts” don’t actually “know” what will happen. They hypothesize, and then things play out in a real world where one is never quite sure of whether they were right or wrong in the first place.
But if you look at the forest through the trees, you begin to realize that no one really knows what would happen in this economy if trade policy all of a sudden shifted to more nationalist. We do not know if the policies of the 80s would be as effective today as they were then. In fact, it’s sort of silly to assume that those policies would work even if everything were exactly the same now, but just add in China’s massive role. Even then, that the single addition of one giant market to the mix could make every approach from the 80s backfire spectacularly.
We just don’t know.
Except we do know one thing. Global open trade, as it is practiced today, has decimated the social cohesion and work opportunities of the bottom half of every western industrial nation who has practiced it, and led to further concentration in the top. It may even be the case that the GDP has grown massively as a result, but the bottom half is, simply put, much worse off. (I don’t want to hear about cheap TVs when entire towns disappear).
In that environment, it makes perfect sense to shift direction towards a more nationalistic policy. Not because it will work, but rather because we know what we have doesn’t.
Britain would not be leaving the EU if it did. Trump would not have the support he has if it did. Nationalist parties in Europe would not be rising if it all worked. And we, here at Ricochet, would not have a significant portion of the members shifting our positions on free trade if it was all working swimmingly.
It’s just not working. And we either address it or we suffer continuous decay.
Jim, you’re turning a conversation about globalism into a debate over the EU. That’s sort of, like, an unfair and overused debating trick. Let’s not do that, please. For what it’s worth, I agree with you completely about the EU….
Now, back to globalism….
One of the worst things about this political cycle is that the following three issues have all been grouped together under the banner of “globalism”:
These are three related but distinct issues, and a knee-jerk policy against “globalism” threatens to undermine the benefits of all three without reducing any of the costs.
On a different note, this is probably one of Trump’s most deeply-held positions. I seriously doubt he cares one way or the other about transgender bathroom laws or abortion, but he’s been scared of trade since the 80’s.
On another different note, it’s a shame TKC isn’t here. I disagree with his position on free trade, but he argues well.
***EDIT: I was wrong about that Trump link. Trump’s argument seems to be more about Japan paying more for military protection than against trade***
Herb,
If you want to use a 30-year-old definition of Globalism that has nothing to do with the current situation, I would say that was a debating trick.
Now back to what is relevant.
Regards,
Jim
Until you can marshal some “data” that explains why Carrier’s manufacturing is leaving the US, the latest in far too many such cases, and how that is possibly positive for those left behind, then I’m with the esteemed anonymous. Experts are usually useless. Reality, along with the Invisible Hand, prevails.
False. The 20th century is littered with nations that tried it, most recently Venezuela. North Korea’s been practicing it continually since the war. Gandhi “cared” more about the poor than either of us, and he kept poverty rampant for a generation.
In the 80’s people were terrified of those wily Japanese stealing our jobs. The Japanese had a decade of no-growth before the 2008 crash gave them another decade of no-growth.
We’ve had ghost towns since Roanoke Island. Towns disappearing is a sign that people are moving to where the jobs are.
In that environment, it makes perfect sense to shift direction towards a more [shoot ourselves in the foot] policy. Not because it will work, but rather because we know what we have doesn’t.
The logic for “nationalism” here is indistinguishable from the logic for shooting ourselves in the foot.
Globalism is the same issue, though, to be fair to Jim. In the EU, just as in DC, the individual citizens are just pawns in the grand game of international trade, and if the numbers lead the “experts” to prevail in their policy prescriptions, and those negatively affects the citizens, tough cookies. Globalism is an umbrella term that includes both economics and national security, but either realm is fair game is this conversation, as they are intimately related.
Completely false. Just because one country attempts a closed system, it does not mean that another country attempting a mercantilist solution will result in the same thing. This is not a simple continuum from closed to open. This is the simple and ignorant logic that pervades the discourse. We have no clue if it will work. We do know that the current system has not worked (otherwise, we wouldn’t have the current political dislocation globally).
It’s positive for most of us because we’re going to get cheaper goods. It’s not positive for the Carrier employees because they’ve lost jobs. The aggregate benefits outweigh the aggregate costs.
The situation is exactly the same as when drug patents expire. The drug company loses a major source of revenue, and the general public gets much cheaper goods. Should we extend patents indefinitely to protect drug company jobs?
Maybe Claire could change the title of the OP?
Completely irrelevant. Anyone asserting that the economy of the 80s is remotely similar in any manner to today’s economy to justify a comparison to today’s solution is not thinking it through. We occupy a completely different position in a global labor market that itself resembles nothing like what the 80s had.
As long as there exists no implication, anywhere, by anyone, that the Brexit vote was simply a vote against globalism, then I would agree to this. Wikipedia starts its definition with the caveat “Not to be confused with globalization”, then proceeds to state “The concept of globalism now is most commonly used to refer to different ideologies of globalization.”
Globalization is defined as “the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture.”
This is a horse of a different color. This thread would probably have turned out differently if “Free Trade” had been used in the title.
Unless those jobs are in China. And that is one way this is different and comparisons like this are irrelevant. People cannot move as easy as demand can. So any system that opens up to changes in demand will result in decreasing opportunities for some and increasing for others. If we are implementing policies that decrease opportunities for Americans and replace them with opportunities for Chinese, and in return wealthy upper half take a bigger cut of more trade, then our government is failing us.
It really is a continuum, and it really is dozens of countries, not just one. The stark examples are just easier to understand.
Only if you assume that nationalist trade policy is a poor choice. Your conclusion assumes that which we are arguing, and therefore is indistinguishable from biased polemics.
This is just not true. There are too many options that governments have in monetary policy, open borders, free trade, protectionist tariffs, assertive litigation in both private and public spheres, control of key waterways, military policy as a means for gaining resources and access, tax policy, etc. Not to mention national cultures, IP rights, education systems, etc.
To speak of this as a continuum is silly.
My issue with protectionism is that it results in the same ills and the same people as globalism.
So liberals pushing liberal agendas kill off American industry and so now we must stop free trade and ignore economists because the Sierra Club peddles bad science? It seems to me had we not had the free trade we would still have had all the environmental and union problems, and no outlet to bypass them so we would be even worse off. How can out economy survive getting it from both the right and left?
My point is that literally anything can be justified if you start with “what we’re doing now isn’t working” and don’t look at the probable results of the proposed solution. Examples:
Communism has never been properly tried. I say we give it another chance.
Words mean things. Globalism means something. Supra-national government means something else. We can’t have a discussion when people aren’t using the same language. We also can’t have a very interesting discussion about specific pros and cons of different policies when they are all lumped together under one heading that means different things to different people.
The problem with the whole thesis of the protectionists is that they are misunderstanding the role that technology, automation and yes, free trade play in the immense productivity of the US manufacturing sector.
One of the oft-cited sources of angst is the amount of steel that the US produces – as if this were some sort of bellwether in and of itself. One of the things about this chart that is most interesting is the fact that domestic demand for steel is basically as strong as it ever has been. That steel is being used somewhere. That somewhere is in the manufacture of goods and the construction of buildings. People aren’t just stacking steel ingots up in their warehouses for a rainy day.
If you won’t look at how other countries have done, our own history is quite enlightening.
There are circumstances where the first four are reasonable. The fifth is silly. When used as a means to counter an argument about protectionism, referencing shooting oneself in the foot is intended to signal that protectionism is not a valid choice.
The first four are valid responses to a system that no longer works. As is increasing mercantalist policies.
Shooting oneself in the foot is not serious. The probable result of that proposed solution is known.
No. What we need is some form of Socialism, but not some terrible Globalist one rather a Nationalistic one. Where all Americans work for the Greatness of America. A coordination of Labor and Business that will help us to overcome the failure of the greedy Capitalists.
We go with the data we have. The data clearly points to free trade being a net benefit to all. As Mr. Meyer pointed out, and Milton Friedman before him, its hard for any individual to gauge these things because of the concentrated benefits problem.
This is another failure in logic. Solution A to Situation X resulted in poor policy. Therefore, Solution A to Situation Y will necessarily result in poor policy.
Also, no one is even proposing Solution A today.
Why do you think that the central planners will be smarter today than in the 80s? One constant throughout history is that central planners never get it right.
Your insistence on ignoring all historical examples is quite resolute.
She was using DTs words that doesn’t mean we have to buy into it. Especially after Columbo admitted that they aren’t necessarily the same thing.