Truthiness On Trade

With the official death of the Trans-Pacific Partnership (TPP) and the likely renegotiation of NAFTA, the proponents of these deals are doubling down in their defense of the current course of U.S. trade policy. While there are serious arguments that can be made in defense of these policies, advocates are instead seeking to deny basic reality.

These trade policy proponents are trying to deny that these policies have hurt large segments of the workforce and are claiming that the people, who believe that they were hurt by trade, are simply misinformed. The proponent’s story is that the real cause of job loss was the impersonal force of technology, not a trade policy that deliberately placed U.S. manufacturing workers in direct competition with low paid workers in the developing world.

Fortunately this is a case where the facts are clear. The people who think they were hurt by trade are right. It is the people who blame technology who are misinformed or worse.

The obvious error in the technology or automation story is that automation is not anything new. We have been seeing increases in productivity in manufacturing forever; it is not something that just happened in the last two decades. In fact, the most rapid period of technological change was in the quarter century from 1947 to 1973, not the last two decades.

In spite of increases in productivity growth, there was relatively little net change in manufacturing employment in the three decades from 1970 to 2000. There were 17.8 million jobs in manufacturing in 1970 and 17.3 million in 2000. There were cyclical ups and downs, but the downward trend was relatively modest. To be clear, manufacturing was declining as a share of total employment, but there was little change in the absolute level of employment.

This changed in the years from 2000 to 2007. Over this seven year period, manufacturing employment fell by 3.4 million jobs to 13.9 million. Note that 2007 is before the collapse of the housing bubble that threw the economy into recession. The reason for this plunge in employment is simple, the trade deficit exploded to almost 6.0 percent of GDP, more than $1.1 trillion in today’s economy.

To argue that this surge in the trade deficit was not associated with a loss of manufacturing jobs is absurd on its face. Does anyone seriously want to argue that if the trade deficit had remained near 1.5 percent of GDP (its mid-1990 level), that we would not have more manufacturing jobs. Or to flip the question over, can we add over $1 trillion to our annual output in manufacturing without hiring additional workers?

And these job losses were concentrated in the traditional industrial states that featured prominently in the fall election. Ohio lost 250,000 manufacturing jobs over this period, one quarter of its total. Michigan lost 280,000 jobs, more than 30 percent of its manufacturing employment. Pennsylvania lost over 300,000 manufacturing jobs, roughly one-third of its total.

None of these numbers are seriously contestable outside of Donald Trump’s alternative fact universe. They all come from the Bureau of Labor Statistics and can be easily verified by any of the commentators blaming automation, if they were interested in actually knowing anything about the issue.

In fact, this story really understates the impact of trade since the imbalances that lead to the housing bubble and the subsequent crash and Great Recession were directly tied to the massive trade deficit the United States ran in this period. For this reason, people would not be wrong to say that our trade policies were an important contributor to the Great Recession and its devastating impact on the labor market.

It is also worth pointing out we could have pursued trade policies that were not so harmful to these workers. Our high dollar policy, which began under Treasury Secretary Robert Rubin in 1996, was central to the huge trade deficits of the next decade.

Also, contrary to the folk wisdom of the elites, we have selective protectionism, not free trade. While it is easy to import manufactured goods produced by the cheapest labor anywhere in the world, even a highly qualified foreign doctor would get arrested for practicing medicine in the United States unless they first completed a U.S. residency program. We subjected our manufacturing workers to international competition, while largely protecting our most highly paid professionals.

This reality check is important. The people who turned away from the Democrats and voted for Donald Trump really did have legitimate grievances. Trade policies supported by the leadership of both parties had a devastating impact on the lives of millions of workers and their families.

This doesn’t justify voting for a reality-challenged bigot like Trump, but it is flat out dishonest to deny the damage that our trade policies have inflicted on large segments of the country. Denying this reality is not a promising path for winning back the support of these voters, although it may make the people who benefited from these trade policies feel better about themselves.


This was reposted from The Huffington Post.