President-elect Donald Trump faces heavy pressure from the establishment to abandon his campaign promises on trade policy. His announcement on Monday saying that he would pull out of President Obama's Trans-Pacific Partnership (TPP) on his first day in office shows that he's not giving in – and for the sake of a healthy economy he must stand his ground.
Tune into Worldwide Exchange on Wednesday Nov. 23 at 5:15 am when Alan Tonelson will make a guest appearance.
Trade supporters are employing arguments that have repulsed challengers for decades, at least in the halls of government: that the string of deals and similar policies starting with the North American Free Trade Agreement (NAFTA) has opened invaluable markets to American businesses and workers and fueled production and employment; that fending off even predatory foreign competition with tariffs and other restrictions would spark disastrous global trade wars, a worldwide recession – or maybe worse; that such curbs would mainly raise prices for American consumers, especially at the lower and middle income rungs; and that ever accelerating automation will prevent the return of prized manufacturing jobs lost to imports or offshoring. But none has ever survived serious scrutiny.
Far from adding to domestic output, America's trade flows have dragged on economic performance for decades. According to the standard method for measuring the economy's size and expansion or shrinkage, the kinds of rising trade deficits the nation has run since the 1970s subtract from growth. When Americans were counting on other engines of economic advance – ranging from healthily growing domestic demand to bubbles in stocks or technology or housing – trade's growth drag seemed unimportant. These days, amid the slowest U.S. recovery on record, it's completely unaffordable.
Moreover, Washington clearly deserves most of the blame. Since the last recession ended in mid-2009, the growth of the trade deficit heavily affected by current trade agreements and similar policies, in goods other than oil, has slowed the current expansion in inflation-adjusted terms by more than 16 percent – or more than $377 billion, according to my calculations using government data. Worse, nearly all these losses have come in the private sector, the economy's leader in productivity and innovation.
The major reason for the Made in Washington trade deficit's expansion also explains why trade war worries are far-fetched: Most other leading economies depend heavily on selling to Americans and amassing trade surpluses to grow adequately. When American leaders have expanded trade with these determinedly mercantile powers, they inevitably opened their markets less than America, whatever their paper promises. Trade imbalances inevitably widened. A Trump policy overhaul may spark some short-term spats, but these foreign governments will soon recognize the folly of assaulting a crucial customer.