Act I of the Trump Administration’s economic agenda cleared the deck of a number of existing economic ties and call into question others. In one week, the President opted out of the twelve-nation Trans Pacific Partnership pact leaving China to fill the void in Asia; called for renegotiation of NAFTA with a threat of possible high increased tariffs at the southern border spurring Mexico and Canada to consider other options for countries with which to form closer trade ties; caused the European Union’s president to call upon its member states to resist any U.S. overtures for negotiation of bilateral country-by-country agreements, and specified which persons could easily enter the United States from certain locations.
Act II can be the beginning of a positive agenda. This needs to have four components:
Education and workforce training
A key priority of the new Administration is creating good jobs in quantity. It is not clear that on-shoring (bring manufacturing back to the U.S.) will create all that much employment. New plants are highly automated. A 2013 Oxford University study estimated that 47% of all U.S. jobs are at risk from use of computers. Worse, from the point of view of numbers, are the forthcoming transitions to an increased use of robotics in new applications such as autonomous vehicles.
There are currently about 3 million truck drivers employed in the U.S.; over 600,000 bus drivers; and another half million ride-hailing drivers including taxi drivers. When automation hits fully, there is at least the possibility that some 4 million currently employed drivers will need alternative employment. This looks dire, but studies also show that advances in technology have historically created more jobs than they displace. As one surprising example, the introduction of ATMs actually increased the demand for human tellers as it became feasible to open more bank branches. That cannot be relied on to be replicated in all industries, so urgent attention needs to be paid to developing a population with enhanced skill sets to fill future workforce needs.
This is not an insurmountable challenge. De-mobilization after WWII was perhaps the largest employment challenge the country has ever faced. For example, returning veterans were at least twice the number of those who may be displaced as vehicle drivers needing work. The GI bill provided education to 2.2 million returning vets. The challenge going forward requires both national and state planning. The Federal program of trade adjustment assistance, even when available, is not designed to meet this need and is wholly inadequate to the task at hand. The Trump Administration is focused on good jobs. Future demands for skilled workers can only be met through training and education and a positive immigration policy.
Taxation
There is hardly any subject that is more complex. Every president coming into office wants to simplify and improve the tax code. There is now a chance to do so. The Congress and the White House are controlled by a single party. That party ran on a platform of removing the competitive disadvantage the American tax system creates for companies (and therefore workers) serving global markets from a U.S. base. Lowering the corporate tax rate, stimulating the repatriation of profits held abroad, and eliminating other ways in which the U.S. tax system makes America a less attractive place for economic activity requires Congress to enact fundamental beneficial changes to U.S. taxation.
All of American businesses’ major competitors abroad have tax systems that benefit production relative to consumption. The House Ways and Means Committee is intent on providing a solution to the problem. The solution needs to be one that enhances the United States as a place from which to compete at home and abroad while avoiding substantial adverse effects felt differentially by consumers and segments of the business community. This is a daunting task but it is worth the effort to find appropriate solutions. The most important trade measure that the Trump Administration can put into place is a more competitive tax structure.
Infrastructure
Making American an efficient place from which to compete globally requires state-of-the-art infrastructure. American airports on average compare poorly with those abroad, particularly in Asia. Members of Congress should visit Cambodia’s Phnom Penh airport before they take up the infrastructure spending bill. A large number of U.S. airports are a national disgrace. Cambodia has a per capita GDP of just under $3000/year compared with the U.S. average of $54,000. Visiting La Guardia or Newark, one would have thought Cambodia was far richer than the U.S.
International competitiveness depends in part on having a modern infrastructure. The World Economic Forum places the United States 11th in overall infrastructure among country ratings. While China is much lower in the rankings, it has plans to build 66 new airports over the next five years. U.S. airports are in desperate need of modernization and some work has begun. There are a number of other areas of transportation in which the U.S. has fallen behind its commercial rivals. China has 12,500 miles of high speed rail lines, more than the rest of the world combined. The U.S. appears to have just the 226 mile stretch of high speed rail between Washington and New York City in current service. Beyond airports and rail, there are some 60,000 bridges in the U.S. and over 185,000 American roads that require repair. America’s competitive edge was due in no small part to the backing by Abraham Lincoln a century and a half ago of the transcontinental railroad and the building of the interstate highway system begun by Dwight Eisenhower. If Mr. Trump wants to be remembered for enhancing America’s edge in world trade, improving the national infrastructure is an essential component.
Trade negotiations
The Trump campaign slogan “Make America Great Again” needs to include restoring the United States to a position of international economic leadership in Asia. TPP should provide a floor in terms of the level of ambition both for new rules and trade liberalization in new agreements. Rebuilding American economic leadership in Asia has to begin with a close working relationship with Japan. The two countries can create a nucleus around which other Asian countries and Pacific nations can coalesce. Indonesia, Taiwan, Korea, Thailand and the Philippines had already expressed an interest in joining TPP. Based on a working relationship with Japan, a Trump Pacific Partnership (a new TPP) should be offered. It will be far more beneficial than the weaker Regional Comprehensive Economic Partnership (RCEP) that China is offering. The modernized NAFTA can be added to this arrangement along with agreements with other Latin American trading partners plus Australia and New Zealand. Europe should not be forgotten either. A start may be made in bilateral discussions with the United Kingdom, but the largest part of the developed world market is represented by the European Union. When the EU has gone through its key elections in 2017, a return to dealing with the EU as a whole is needed.
Frenetic activity characterized the first weeks of the Trump Administration. Going forward what is needed is to begin the construction of an improved international trading system and making sure that the United States is in an excellent position to benefit fully from the new improved trading arrangements.
One additional requirement is staffing up. The highly qualified and experienced U.S. chief trade negotiator that has been named by the President needs to be brought on board as soon as possible. There are a lot of matters competing for attention, but getting the full professional trade negotiating team in place needs to be a very high Administration and Congressional priority.
Alan Wm. Wolff is a Senior Counsel with Dentons. He chairs the Board of the National Foreign Trade Council, and served in previous Republican and Democratic Administrations as a senior trade negotiator.
