Clinton and Trump wage a trade war on trade

Donald Trump and Hillary Clinton don't agree on taxes or immigration, but on trade pacts and international trade, there's not much difference between them: One is bad, and the other is bad.

Hillary and Donald: Dumb and dumberer on trade / Image by Donkey Hotey
Hillary and Donald: Dumb and dumberer on trade / Image by Donkey Hotey

WASHINGTON, August 21, 2016 — The Donald Trump and Hillary Clinton economic plans give Americans a sharp, clear choice in November. When those plans are taken piece by piece, though, the choice can be less clear.

Consider trade.

Trump’s stand on trade is caricatured as “opposed.” His actual stand is closer to “opposed, except when I’m not.”

In his economic policy speech in Detroit, Trump declared his opposition to NAFTA, the TPP and the South Korea Bilateral Agreement. He stressed that he’s not an isolationist, but he will only support “great” trade deals.

Doing what Trump does: An 18-wheeler full of supplies and Play-Doh

NAFTA, negotiated by President Bill Clinton’s administration, and the South Korea deal, negotiated by the Obama administration with Hillary Clinton at the State Department, are arguably not great. The U.S. ran a modest trade surplus with Mexico when NAFTA was passed; that has been transformed into a $60 billion goods deficit. The Clinton administration promised that NAFTA would create 200,000 jobs net; according to the Economic Policy Institute, it has cost 700,000 jobs net.

The South Korea trade agreement has less evidence behind it, but the EPI claims that it has cost 75,000 jobs rather than creating the 70,000 promised by the Obama Administration. At the same time, the U.S. trade deficit with South Korea has doubled.

If jobs and trade deficits are the reasons these trade pacts are arguably bad, they are a bad argument.

The EPI’s calculation is not one that most economists would agree with. Job losses are associated with monetary and fiscal policies that accompany trade, not with trade itself. As Tim Worstall writes for Forbes, the EPI calculates “…how many jobs it takes to make a certain amount of stuff, look at the amount of stuff making up the trade deficit and multiply one by the other. Seems fair enough really: but it’s not actually a measure of jobs lost. That’s a measure of jobs changed for a reason we’ll come to in a moment.”

Putting words in Worstall’s mouth, manufacturing jobs aren’t lost because of trade. They are changed: They become jobs in new industries, and they become service jobs. The EPI, Trump and Clinton all focus on well-paying manufacturing jobs. The jobs whose passing they mourn no longer exist. They haven’t moved away; they are simply gone, replaced by other jobs.

If NAFTA is a bad trade deal, Trump has not proposed or defined a “great” one. The Central American Free Trade Agreement, CAFTA-DR, might qualify. That agreement has seen the U.S. trade surplus with the member countries grow from $2.7 billion to about $5 billion.

A trade surplus or deficit isn’t enough to define a good or a bad trade deal. If the U.S. surplus with Central American nations has grown, their deficit with us has grown at the same time. To call that “good” is to define good trade deals as deals that look bad to the other side.

The real value of a trade deal is its net impact on economic growth, which can be positive even if a trade deficit results. The point of a trade deal is to benefit both sides, not just one. Because a surplus for one side is a deficit for another, to define the benefit by the size of the surplus means that one side will always be hurt. There would be no point to trade agreements except to beggar your neighbors.

Aside from jettisoning bad trade deals in favor of good ones, Trump’s trade policy calls for import tariffs: 35 percent on goods from Mexico, 45 percent on goods from China.

The point of Trump’s tariffs is to bring lost, well-paying, manufacturing jobs back to America. The proposed tariff on Chinese imports would immediately raise the price of everything from plastic lawn furniture to iPhones by 45 percent. This would, according to Trump and Clinton, encourage Walmart and Apple to bring production of those goods back to the U.S. in order to compete with other manufacturers who would produce here to avoid the tariffs.

The actual result will be the immiseration of American workers. They won’t be able to buy that plastic law furniture, let alone the iPhones which will be much more expensive. The American workers who get those “well-paying” manufacturing jobs will find that their wages don’t go far.

Clinton’s stand on trade differs from Trump’s, but the difference is not stark. She has in the past supported NAFTA, TPP and the South Korea trade deal; she opposed CAFTA-DR. But she now considers TPP a poor deal and regrets NAFTA. She opposes Trump’s tariffs, but wants to bring back those same, well-paying manufacturing jobs via tax incentives.

There is little real difference between Trump and Clinton on trade agreements; each wants “better” agreements that are less likely to cost American jobs or hurt the trade balance. Neither has been specific on what that means or how to do it. Neither understands that manufacturing jobs and trade in goods aren’t the only measures of trade.

Understanding the clear benefits of free trade

Trump has threatened to tear up existing trade pacts. That would be hugely damaging to American diplomacy and costly to the U.S. economy. He probably wouldn’t really do that unilaterally, but Clinton hasn’t even made the threat.

Whether you think that free trade is a good thing or bad, you won’t find much difference between Trump and Clinton. Neither takes a realistic or sound approach to trade, opting for a populist trade nationalism. Both discount the importance of service sector jobs, forgetting that these include not just working at Burger King, but also writing software and designing those iPhones that are made in China.

Free trade has hurt millions of American workers. Free-traders underestimated the depth and duration of the pain, and they have been too casual about writing off the losers in the game. When Clinton casually announced her hope that the coal industry die, she treated unemployed coal miners and their families as acceptable collateral damage.

Trump has appealed to those coal miners and more, tapping into the rage that the losers in the global trade game feel for the political establishment that has ignored them. But Trump’s promise, and Clinton’s “me too” embrace of the “fair, not free trade” agenda is a lie. Washington must find a way to reduce the social and economic harm done by trade, but that trade remains a driver of global economic growth.

Trade benefits China, but it benefits us, to. We need now to translate those benefits into better opportunity and better lives for all.

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