I found both Robert Samuelson and Jeffrey Immelt (GE’s CEO) to be largely missing the boat, if not the container ship, this AM in the former’s WaPo oped. The flaws here are a) conflating trade agreements (TAs) with globalization and b) labeling all the candidates protectionist (Immelt: “every candidate is protectionist”).
Let’s start with that last bit. It’s very important to listen carefully to what candidates are actually saying. Hillary Clinton, for example, while opposing the TPP, has emphasized, “Even if the United States never signs another trade agreement, globalization isn’t going away.”
That is not protectionism; it’s realism. It’s not just that those who insist on conflating globalization with TAs miss this forest for the trees. It’s that by failing to understand what’s really gone wrong with both trade and trade policy, their arguments incent greater anger and paradoxically risk sacrificing the benefits of expanded trade both here and abroad.
One important hint that this trade/TA conflation is misguided comes from the International Trade Commission’s recent review of the economic impacts of the TPP. They find that, by 2032, they expect the deal to increase US real GDP by $42.7 billion, or 0.15 percent, and increase employment the equivalent of 128,000 full-time jobs, or 0.07 percent.
As I wrote at the time: “…let’s wrap our head around the magnitude of these predictions. The forecast is that the TPP will boost real GDP 0.15 percent over its baseline value 15 years from now. When you back out the report’s assumed growth rates for real GDP with and without the TPP in place, you find that this is equivalent to one month of real GDP growth. That is, real GDP would hit its TPP level one month later in a world with no TPP.”
Not to mention that estimates of such a tiny magnitude based on a 6,000 page, 12-country trade deal – 15 years out – are surely statistically indistinguishable from no changes at all.
The impacts of actual globalization, on the other hand, are profound, both positive and negative, particularly in the US case wherein we have sustained economically large trade deficits for decades now.
Samuelson argues that the loss of political support for trade isn’t about pocketbook economics. It’s about the “loss of national sovereignty.” Maybe so for the punditry, but for everyday folks, it’s about the well-documented hit to their jobs and real wages. David Autor et al find that surging Chinese imports led to the loss of over 2 million jobs, a full 17 percent of manufacturing job losses over the 1990s and 2000s. Josh Bivens finds the costs of expanded trade with low-wage countries to be around $1,800 apiece for non-college graduates (who still, ftr, represent about two-thirds of the work force). And Bivens’ numbers are in real terms, i.e., accounting for the clear price gains from globalization’s expanded supply chains (Autor et al too find significant, negative, real wage impacts).
Immelt, for his part, argues that unless candidates stop saying nasty things about trade, he’s going to “localize” GE’s production, meaning produce closer to where they sell. That, he warns, will ding American exports.
If he’s truly making portentous business location decisions based on campaign rhetoric, you should probably short the stock. No question, Trump in particular is especially incoherent on trade policy (and everything else), and may well be a protectionist, though that’s not how he’s run his own businesses. Certainly, as Larry Summers writes today, a Trump presidency would potentially generate tremendous economic uncertainty, if not recession.
Even then, one would hope Immelt and other multinational CEOs would make production choices based on the numbers along with the actual political outcomes. If producing closer to where you sell makes economic sense, then GE should do so, which, for the record, has led some American companies back towards onshoring formerly foreign production. The key factors here are not politicians’ rhetoric or even, as the ITC report shows, trade deals: they’re exchange rates, relative unit labor costs (wages relative to productivity), and transportation costs.
In order to resolve the current anger in a way that might preserve and further the benefits of globalization, we must:
–recognize that not everyone who criticizes TAs is a protectionist. Stop the name calling.
–stop pretending the costs of trade have not fallen heavily on large groups of workers and their communities who are not assuaged by cheap, flat panel TVs (President Obama’s e.g. on why the working class should support the TPP in his otherwise excellent economics speech last week).
–begin to seriously contemplate how we reform the TA process such that the new rules of the road are not written by and for corporate interests but by a much broader group of stakeholders on all sides of the border with legitimate concerns about labor, environment, and sovereign rights.
I’m working with colleagues on the latter and will have something ready soon. I truly hope it contributes to a new, improved, and much more realistic conversation.