Foreign Trade Policies and American Prosperity
This post is the second in a three part series that attempts to dissect and evaluate popular lines of rhetoric surrounding trade. This second post discusses two lines of rhetoric surrounding trade practices and the implications to American prosperity.
Rhetoric Line 2: UNFAIR TRADE PRACTICES ARE JEOPARDIZING THE INDUSTRIES THAT BUILT OUR NATION
First off, the obvious must be stated. China and, to varying degrees, other major trading partners have engaged in practices that would not be classified as open or free trade. However, what is often neglected when such discussions are had are the tariffs the United States has enacted across many administrations republican and democrat. For example, it is true that Europe places a flat 10 percent rate on imported automobiles, but it is also true that the United States places a 25 percent tariff on imported trucks. An entire paper could be written evaluating US trade relationships across the globe, so this article will focus on the country the current administration has focused its attention on, China.
The claims Trump has made against China are not unfounded, although many are exaggerated and fail to address the intricacies of the US — China trading relationship. There are very legitimate arguments that China should not have been granted membership in the World Trade Organization until it made concessions on a greater number of the practices it implemented during its rise to dominance. A prime issue of debate has been China’s disregard for intellectual property rights and speculations around forced intellectual property transfer in state-mandated joint ventures. Worth noting however, China has made a series of important concessions since its induction into the WTO. It did walk away from a large number of the trading practices that would otherwise put it at odds with the agreements predicate to being a WTO member.[i]
Beyond competitiveness and security issues raised in regard to intellectual property concerns, two of the most commonly cited grievances voiced from the administration surrounding trade with China are (1) the movement of manufacturing jobs abroad and (2) trade practices artificially depressing the costs of goods imported from other countries, and the resulting artificial uptick in demand for imports.
The United States started as a country very focused on manual labor. But the truth of the matter is, times are changing. The US is now the major capital investor in the world. It has built itself up as a hub for innovation, investment, and growth. It has become a market where good paying jobs are coming from the skilled labor sector. As much as members of the administration would like for you to jump into their time machine back to an era of greater transition and growth, this is simply not the world we live in.
Many industries that lead to the US becoming a major world super power are no longer industries the United States is competitive in. Unfortunately, this does mean there has been a class of workers left behind. Outsourcing has caused these workers to lose their jobs or experience depressed wages. Wage growth is disproportionally being experienced in industries where the US still exports. Jobs in sectors where the United States is an exporter of goods or services pay on average 20 percent more than jobs in non-exporting sectors.[ii] The failure to recognize this transition is dangerous and seriously threatens the long term, strategic growth of the United States and the wellbeing of its citizens.
The US has done an undeniably poor job of preparing workers left behind to be competitive internationally. The current solution being proposed is to artificially support industries that are either not going to be relevant in the near future, such as coal, or industries the United States fundamentally will never be competitive in again, such as low cost manufacturing. To the extent the United States, governed by free market forces, will ever be competitive in manufacturing again it will be through the use of automated technologies that will ultimately have the same impact of pushing people out of low skilled job markets.
In his book Failure to Adjust, Edward Alden talks about the strategic steps needed to retrain and retool the workforce. By not doing so, we will continue to see increasing wage disparities and a disappearing middle class. Economic mobility in the United States is already among the lowest in the developed world.[iii] The level and growth rate of inequality in the United States puts it among the worst performing countries in the OECD only underperformed by Chile, Mexico, and Turkey.[iv] As more and more Americans are left behind in a globalized world, it is guaranteed that economic prosperity will dwindle and civil unrest will intensify.
Rhetoric Line 3: AMERICA STILL HOLDS ALL THE CARDS IN THE GLOBAL TRADE ENVIRONMENT
Many of the trade tactics currently being employed rely on the leverage the United States has as an economic super power. Being a major source of investment capital and the largest consumer in the world, the United States undoubtedly has leverage it can throw around. Nevertheless, there are a considerable number of forces in play that serve to lessen or deplete this leverage. There is significant concern surrounding the degree of legitimacy the United States is perceived to have globally. As decisions continue to be erratic and agreements prove empty, global entities question to what degree they can rely on the United States as an ally and partner. Beyond this concern of legitimacy lies the concern that other countries are setting themselves up to take the position the United States and other western countries have to this point held.
Chinese Rise to Power — Whether the global superpowers want to recognize it or not, as the western world moves towards populism and leans towards pointing fingers at the practices of other nations, China is systematically building the infrastructure and inroads that will enable it to grow unlike it has in the past. While the US is thwarting NAFTA talks and repelling its largest importers, China is making strategic investments in Mexico that will increase its access to South America.[v] While the US continues to strain its relationships with European allies through tariff impositions and the exiting of major global agreements, China has finalized its 16+1 trade agreement with Eastern European countries. While the US tries to revive failing industries, China’s 2025 plan has it moving into the high tech sectors where the United States, for the time being, still has the competitive advantage. While the US continues to funnel billions of unfunded dollars into a military that only produced its first set of auditable financial statements this year, that has over 10 trillion dollars worth of unaccounted for taxpayer dollars, and that functions on largely outdated technology, China is leapfrogging in military technology of the 21st century that will allow for leaner more efficient military spending.[vi]
There is no doubt the United States has served as one of the loudest voices in the world over the past century. As the major source of capital in the global economy it is often said “when America sneezes the rest of the world catches a cold.” As an economic powerhouse and a leader in innovation the United States has enjoyed a seat at nearly every international negotiating table. However, to believe this position is unthwartable is naive and dangerous.
Serious consideration must be given as to what attributes make the United States a superpower and deserving of a major voice in global economic and social conversations. As other emerging countries continue to define long term strategies, the United States risks falling behind.
[i] “2015 Report to Congress On China’s WTO Compliance,” United States Trade Representative, December 2015, https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-Compliance.pdf
[ii] Alden, E. H. (2017). Failure to adjust: How Americans got left behind in the global economy. Lanham: Rowman & Littlefield.
[iii] State of the union the poverty and inequality report
[iv] “United States: Tackling High Inequalities, Creating Opportunities for All,” OECD, June 2014, https://www.oecd.org/unitedstates/Tackling-high-inequalities.pdf.
[v] Eschenbacher, S. (2018, May 17). Bank of China plans to go ‘local’ in Mexico. Retrieved from https://www.reuters.com/article/bank-of-china-mexico-outlook/bank-of-china-plans-to-go-local-in-mexico-idUSL2N1SO25C
[vi] Kotlikoff, L. (2017, December 13). Has Our Government Spent $21 Trillion Of Our Money Without Telling Us? Retrieved from https://www.forbes.com/sites/kotlikoff/2017/12/08/has-our-government-spent-21-trillion-of-our-money-without-telling-us/2/#71b3972f66f0
