Donald Trump has been savaged by economists and the media aligned with establishment candidates for tough positions on trade—including a 45 percent tariff on imports to force China to the negotiating table.
Actually, he’s got it right.
Establishment Democrats and Republicans embrace free trade because it puts free markets first with benefits any decently trained economist should extoll. Unfortunately, trade with China and many nations is hardly market-driven.
It hurts U.S. growth and victimizes America’s families.
Obama’s six-year expansion has averaged 2.2 percent annual economic growth and added 13.6 million jobs. Coming off a similar bout with double-digit unemployment, Reagan delivered 4.6 percent growth and, in a smaller economy, added 18.1 million jobs.
Now conditions in China threaten to derail the U.S. recovery. Beijing’s statisticians report China’s growth slowed to 6.9 percent in 2015, down from double digits a few years ago. Western estimates are as low as 4 percent, and much of that is decadent.
Building apartments and office complexes that attract no tenants, and entire ghost cities, count in China’s GDP tally but add little to productivity. Wasteful outlays have boosted debt to 260 percent of GDP.
Nervous about a looming credit crisis, Chinese investors are heading for the doors—selling yuan for dollars to invest in overseas real estate and securities. This panics global stock markets and pushes down the yuan against the dollar—making Chinese goods artificially more price competitive against American-made products than underlying costs warrant.
For all the talk of a faltering dragon, U.S. imports from China were up, exports down, and the bilateral trade deficit increased nearly $25 billion in 2015—killing 200,000 American jobs.
Crippling debt is epidemic among emerging economies, as many borrowed in a mad race to expand manufacturing. Like Japan and the European Union, they now seek to cope with excess capacity and crushing interest payments by cheapening their currencies to juice exports and ship unemployment to America.
Those strategies have pushed U.S. manufacturing into recession—employment in export-focused durable goods is down 35,000 since June.
Trade should work better for America. We have a highly productive workforce and generate most of the world’s cutting edge innovations, but commerce doesn’t happen in a vacuum. Governments put up tariffs, impose tough regulations on foreign goods and investment, and offer businesses subsidies to export more.
How tough conditions are for U.S.-based industry is strongly determined by international trade agreements—those administered by the World Trade Organization and deals struck with individual countries.
The Obama Administration heralded the U.S.-Korea Free Trade Agreement as creating “countless new opportunities for U.S. exporters to sell more Made-in-America goods, services and agricultural products to Korean customers – and to support more good jobs here at home.” Since implemented in 2012, imports from Korea have risen much more than exports, and the bilateral trade deficit is up about $16 billion—destroying 130,000 good-paying American jobs.
Now the Obama Administration is making similarly fanciful claims to win congressional approval for a Trans-Pacific Partnership . It would establish free trade with 11 other nations, including Japan, without cleaning up subsidies and currency manipulation.
Overall, the U.S. trade deficit exceeds $500 billion a year and kills about 4 million jobs. Lost manufacturing takes a big bite out of R&D spending and that goes a long way toward explaining why growth is so disappointing and median family incomes are down $4000 since 2000.
Trump’s proposals for fixing trade—starting with China—address the salient issues of currency, trade barriers and subsidies. Those echo Mitt Romney’s 2012 platform—and candidate Obama in 2008—but threaten entrenched interests in both the Republican and Democratic parties.
Trump is hardly reckless on trade—just a long needed agent for change.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.