Although
Donald Trump (Republican) and Bernie Sanders (Democrat) have both made
opposition to U.S. trade policy a major plank of their surprisingly successful
presidential campaigns, most elite “opinion leaders” in the media and politics
continue to at-best condescend to these messages as a working-class phenomenon
-- a movement by the “losers” in trade that fails to recognize the
counterbalancing winners.
Few in the elite have yet begun to question
their faith in free trade. And, as a result, it is unlikely that
Congress, the executive branch, and other power centers will engage in the
important rethink of U.S. trade policy that the public is calling for. Like
Hillary Clinton and Ted Cruz in the current campaign, Mitt Romney in 2012, and
Barack Obama in 2008, they give lip service to trade concerns, while planning
to continue “free trade” policy once elected. But the voters are right, the
elites are wrong. The trade jobs ‘winners’ are vastly outnumbered by those who
lost millions of jobs. Why the mismatch? Our massive trade deficits.
If
there is a single statistic that shows the major cause of the current malaise
-- and surely it has many causes -- the trade deficit is foremost. It has
worsened since 1975, as shown in the following graph:
In
1980, the U.S. trade deficit was $32 billion (in 2015 dollars). In 2008, it
reached $800 billion (in 2015 dollars), no doubt contributing to the 2008-2009
recession. As a result of the global recession, the trade deficit shrank in
2009 to $434 billion (in 2015 dollars), and then it expanded again with the
modest economic recovery to $530 billion in 2015. Had trade been in balance in 2015, our GDP would have
been $18.5 trillion instead of $17.9 trillion. Had we kept trade in balance
over the last four decades, we would now be experiencing great prosperity, not
malaise.
Another
problem is that trade deficits slow economic growth. The following graph shows
U.S. annual GDP growth by decade:
Since 2006, U.S. economic growth has
averaged a measly 2.1%, whereas, for the 50 years before 2006, the average
growth rate was 4.0%. The U.S. economy has stagnated for an entire decade
because hundreds of U.S. companies have moved some or all of their production
of goods abroad and millions of productive manufacturing workers have lost
their jobs.
According
to Bureau of
Labor Statistics (BLS) data released on Friday, U.S. manufacturing
employment has dropped by 47,000 workers during the first two months of this
year, and manufacturing employment has dropped by 12 percent over the last decade. U.S.
median income in 2014 (adjusted for inflation) was only $351 dollars
above that of 1989 -- an average increase of only $14 a year over a quarter
century. From 1999 to 2014, median income dropped 8 percent. No wonder
the economic malaise led to a popular revolt in the 2016 primaries.
To
be fair, other factors have also reduced jobs in the manufacturing sector. In
fact, technological change and higher productivity reduced jobs in
manufacturing in all of the advanced economies. But U.S. trade deficits made U.S. job losses especially
severe. From 1997 to 2011, according to BLS data, the
proportion of the U.S. workforce employed in manufacturing declined by 33%,
while in trade surplus Japan the decline was only 22%, and in trade surplus
Germany it was only 16%.
Trade
deficits don’t only hurt a country’s workers and diminish its economic growth.
The harm that they do goes much deeper. For instance, there’s the problem of
the foreign debt. In order to import more than it exports, a country has to
borrow from abroad or sell its assets to foreigners. When the U.S. began negotiating the General
Agreement
on Tariffs and Trade (GATT) in 1947, it was the world’s leading creditor. By
the time the ninth round of negotiations had concluded in 1994, it had become
the world’s leading debtor.
As a
result of buying more imports than we export, according to Bureau of Economic
Analysis (BEA) data released on Thursday, the net foreign debt of the American
people at the end of 2015 was $7.4 trillion, 47% of our National Income. In other words, we have run up debt
on foreign credit cards amounting to 47% of our annual income. We are already
making interest payments and dividend payments on that debt, and, eventually,
our older selves or our children will either have to default or pay it back.
The
push toward globalization that began under FDR has in recent decades turned
into a disaster for U.S. workers. The ideology called “free trade,” which
accompanied this push, was the unique instrument of that disaster. But as our
own studies have shown, free trade only works when trade is relatively
balanced. Once trade gets out of balance, a country’s primary goal needs to be
“balanced trade,” not “free trade.” The ideal prescription is “free and
balanced trade,” as is the case of trade between the U.S. and Canada.
Unfortunately “free trade,” has become an
ideology that is not backed by economic
science. History teaches us that countries often engage in mercantilist
practices, imposing barriers on imports and subsidies to exports and
manipulating their exchange rates, actions that the noted economist John
Maynard Keynes called “beggar-one’s-neighbor” policies. Japan, Germany, China,
Mexico, Vietnam, Malaysia, and South Korea are some of the countries that have
“beggared” and continue to beggar the United States.
During
this decline, our leaders, Republican and Democrat, did nothing about the
deficits, believing that increased trade, balanced or not, was good for all
trading partners. But economics shows only that balanced trade is always
advantageous to all trading partners and that free trade is only an appropriate
policy when neither partner employs mercantilist practices. U.S. trade with
Canada is balanced because neither country engages in practices that are
designed to give itself trade surpluses, while giving its trading partner trade
deficits.
The
Congress, having learned nothing from the trade deficits of the preceding
decades, gave fast-track authority to President Obama to negotiate the pending
Trans Pacific Partnership, a multistate trade and regulatory agreement which
permits currency manipulation. Like
our previous trade agreements, it encourages American manufacturers to move
production abroad by reducing
uncertainty if they do so.
The
TPP agreement is so unpopular that every presidential candidate still in the
race, save John Kasich, has objected to it.
Given
the disaster our mismanaged trade policy has been, it is no wonder that voters
are rejecting their party’s leaders’ choices for presidential nomination. If policy elites listen and
learn, they will adopt the policy of balanced
trade, the policy position that has only been advocated by one candidate,
Donald Trump. He has called for trade to be “fair
and balanced” and has threatened tariffs upon trade surplus countries to
bring this about.
anders
has also attacked
past trade deals and advocated for telling “corporate America in a
very forceful way that they are no longer going to throw American workers on
the street and build shiny new plants in China, Mexico, or low-wage
countries." How he plans to more than talk on this issue is
unclear.
If trade is balanced we don’t need to
be concerned about our trading partners’ wage rates, nor do we need to be
concerned about their environmental policies, nor do we need to be concerned
about whether they manipulate exchange rates. Every trade agreement that we
sign should require that trade be kept balanced.
The best way to balance trade is to
apply tariffs or import limitations solely upon countries that have trade
surpluses. We urge the application of a single-country-variable-tariff, which
we call a scaled tariff, because its tariff rate would rise
or fall automatically as the U.S. trade deficit with a trade surplus country
rises or falls.
It would give trade surplus countries
an incentive to buy more from us, or they would lose market share for their
exports in our markets. Donald Trump said he would threaten tariffs upon the
countries with which the U.S. has large chronic trade deficits (including
China, Japan, and Mexico) in order to force them into negotiations.
The scaled tariff conforms to
international rules which authorize trade deficit countries to impose trade
balancing tariffs. President Nixon used that rule to impose an across-the-board
10% tariff in August 1971 which led to the negotiations that balanced U.S.
trade by 1973. But the U.S. elite has failed to invoke this rule for four
decades, despite exploding trade deficits.
If the U.S. is to prosper, U.S.
international trade has to be brought into balance. But our nation’s leaders of
both political parties have been doing next to nothing.
The
Richmans co-authored the 2014 book Balanced
Trade: Ending the Unbearable Costs of America’s Trade Deficits, published
by Lexington Books, and the 2008 book Trading Away Our Future, published
by Ideal Taxes Association.
Read more: http://www.americanthinker.com/articles/2016/04/the_people_are_right_its_time_to_balance_trade.html#ixzz44yQ0MFRDFollow us: @AmericanThinker on Twitter | AmericanThinker on Facebook
