Friday, August 17, 2018

Why is Trump fighting the trade war? – Part II - By Greg P. Richards

On August 3, American Thinker published "Why is Trump fighting the trade war?," which contained a chart showing the devastating flattening of capital spending in the U.S. following the 2001 accession of China to the World Trade Organization (WTO).
We thought readers would be interested in seeing the two additional charts shown here.  The first chart below the capital spending chart is for Industrial Production.  This is an important series in the economy.  You can see that as with capital spending, Industrial Production flattened dramatically after 2001.  Although technically it has increased very, very modestly over the last 18 years, we can say that substantively, it has been flat during this period in a pattern similar to capital spending.  This is a dangerous condition for the U.S. economy.
In some ways, perhaps the most interesting chart of the three is the last one, showing the Labor Participation Rate.  Drop-in labor participation, particularly during the Obama administration, was to some extent a mystery.  There were various vague suggestions about unnamed policies that were causing this effect, but essentially, there was no real explanation for it.  For consistency, the Labor Participation Rate is shown since 1968, but it has been increasing since 1949 due to various factors, not the least of which being the demographics of women entering the workforce over the last 50 years.
Although cause and effect can never be definitively stated in nonscientific phenomena, we can conclude that the drop in the Labor Participation Rate is due to the flatness in capital spending.  That is, capital was not being invested in the economy sufficient to create jobs at the wage level that American workers are used to.  This is also reflected in the flatness of Industrial Production.
The drop in the Labor Participation Rate has improved the reported unemployment rate over these years because it takes people so discouraged that they are no longer looking for work out of that calculation.  If a worker has stopped looking for work, he is counted as no longer in the workforce.  That does not alter the devastation to communities caused by widespread non-working.
The number of jobs lost shown on the chart is roughly 11 million, or approximately 7% of the workforce.  If those jobs were added back as in the workforce, the unemployment rate would be increased by an addition to the reported number of 7%.
This is not ruinous...yet.  Tremendous damage has been done to those people and communities affected.  This was part of the constituency that Trump was addressing during the campaign.  However, during this period, the GDP has chugged along to record levels, as we are used to it doing, albeit at slow growth during the Obama administration.
What Trump is doing is attacking (a) the trend and (b) the causes of the trend before it's any more damaging – i.e., while America can still charge forward at full power.
Without President Trump's dramatic and forceful intervention, these three charts together are a death warrant for a high-wage vigorous America.  President Trump is the only person in public life who understands this problem.  He is so far ahead of his colleagues that they consider him a figure of fun, someone who does not understand the benefits of "free trade," which is an ignorant formulation in light of Chinese mercantilism and of other trade restrictions that we have accepted since World War II but are no longer appropriate.