And ignore some pretty obvious alternative causes of income inequality
The ever quotable Donald Trump wrote yesterday in USA Today that the “[Trans-Pacific Partnership] is the biggest betrayal in a long line of betrayals where politicians have sold out U.S. workers.” But in making that statement, he’s failing to look at what’s really taking place in the U.S. economy—and where trade agreements fit into that picture.
Franklin Roosevelt began the long process of cutting tariffs in 1934 because they were strangling international trade, causing the Great Depression to sink the global economy even deeper. U.S. unemployment was at 25% back in the 1930s—not as high as the 42% Trump claims the present economy is at. Actual numbers at present: just under 5% (or just under 10% if including those who have part-time jobs). The 1930 tariff that Roosevelt and his secretary of state began reducing through reciprocal trade agreements averaged about 20%. Real U.S. unemployment, but for recessions, has been declining ever since the 1934 “President’s Trade Agreements Program” was put into place. Pursuant to trade agreements, U.S. tariffs have been lowered to today’s level of just over 1% for industrial goods, and the U.S economy has grown dramatically over this long period.
With income inequality high and growth in average wages stagnant, disaffection needs a target, and Trump and Sanders supply one: trade agreements. But their claims ignore some pretty obvious alternative causes—a principal one being advances in technology with accompanying pressure on jobs. This process has been going on for a long time. There’s no need to go back to the industrial revolution when power looms displaced cottage weavers in England, or when digital switches replaced most telephone operators for making phone calls a century ago. Just look around today. The American people are taking pictures mostly with smart phones—not cameras—and before that cameras stopped using film. There went two industries—cameras and film. The iPod eliminated a lot of workers producing CDs and CD players, and video streaming is eliminating much of the demand for DVDs and DVD players. Internet sales eliminate order clerks and physical stores. All of these changes create other kinds of jobs, but there is dislocation in every transition.
No presidential candidate is going to tell millennials to give up social media, nor will he or she tell their parents to give up large, flat-screen TVs. True, a lot of these products are imported, made possible by digitally supported global commerce, advanced logistics, and by huge container ships and modernized ports (which also reduced the need for as many dockworkers, and required high skill levels for the new jobs). But no candidate has suggested that the Panama Canal ought not to have been widened to accommodate the super-sized ships.
Technology and trade do have substantial effects on employment, both negative and positive, and these forces really are irreversible without imposing unacceptable costs on the economy and all Americans. So politicians attack trade agreements instead. This is just wrong-headed.
Today’s trade agreements are mostly about putting into place better rules for foreign trade and clearly serve America’s best interests. The behavior of state-owned enterprises that compete with privately owned companies will be subject to new disciplines. Forced localization for data storage—a fundamental need of today’s business—will be forbidden. Regulations are not to be discriminatory against our exported products, and are to be published. Small and medium enterprises are to get access to global markets, and they account for most of current and future U.S. jobs. Yes, the past practice of currency manipulation is not made actionable, but at least it is addressed if it occurs in the future. America is not better off under the status quo.
And it is true that under the TPP, there are some residual high U.S. tariffs being cut, but these are very few, and they are anomalies. The prime example: A 25% tariff on light trucks—imposed 50 years ago to retaliate against Europe for its protection against U.S poultry exports—is going be reduced over a very long period.
American trade does face problems abroad. The cure, to the extent possible, is to be found in the current generation of new trade agreements, which aim to make foreign markets as open as our own. These agreements need to be ratified—not discarded—in favor of protectionist policies that have never worked.
Alan Wm. Wolff is Chairman of the National Foreign Trade Council (NFTC) and a senior counsel practicing international trade law with the global law firm, Dentons.