Make Them Pay

Donald Trump asserts that the United States “loses” in trade with other countries because America imports more value than it sends abroad. Trump’s trade policies are centered on the economics of reducing the trade deficit. Gross Domestic Product growth is created through growth in consumption, government spending, investment and net exports. When a country imports more than it exports by running a trade deficit, this reduces growth.

Trump promises to reduce the trade deficit by negotiating better trade agreements and by threatening countries like China and Mexico with tariffs if they do not make immediate concessions. To accomplish this, Trump plans to use America’s status as the world’s largest single country market to renegotiate current trade agreements that are “killing” domestic manufacturing, especially the North American Free Trade Agreement and the World Trade Organization. In addition, Trump will instruct his Secretary of Commerce to label China as a “currency manipulator” on his first day in office, if elected. Trump has also promised to crack down on violations of trade agreements by tasking his Commerce Secretary to identify violations foreign countries are using to harm American workers, and by directing all appropriate agencies to use “every tool under American and international law to end these abuses.”

There is plenty of information that supports the narrative that free trade has cost Americans jobs. According to the Economic Policy Institute, the United States has lost nearly one-third of its manufacturing jobs since NAFTA, and 50,000 factories have exited the United States since China joined the World Trade Organization. Donald Trump believes that the only way to correct this “unfair treatment” is for the U.S. to pressure the WTO, and its partners in NAFTA and other regional trade pacts to make the agreements fundamentally more pro-American. 

In this election, free trade has been under assault from all corners of the political spectrum, but Trump’s claims that the United States loses in trade deals can really only be said by someone who does not understand the details. According to Kent Jones, a Professor of Economics at Babson College, productivity improvements, the ability to make more output with fewer workers, account for 90 percent of the loss in manufacturing jobs in the last 25 years, not outsourcing. In fact, the gains from NAFTA and many of our regional trade agreements far outweigh the losses for American workers. 

The greatest challenge we face is with worker adjustment. We need more comprehensive investments in retraining programs and relocation assistance to help workers displaced by trade get rehired. Also, market mechanisms need to be more flexible to allow for new job creation. Lawmakers need to create a better business and regulatory environment to help companies expand and hire new workers.

Make no mistake; the trade platforms of both Clinton and. Trump are a shock to establishment American politics, but they also run counter to the enduring, interests of the United States. Republican leaders should stop pandering to nationalism, protectionism and isolationism and should continue opening markets with trade.