Trump's TPP pullout could hurt workers more than it helps

When he signed the executive order formally scrapping a trade deal with 11 Pacific Rim countries, President Donald Trump proclaimed the move a "great thing for the American worker."

But a chorus of trade experts and economists this week have argued that the pulling out of the 12-nation Trans-Pacific Partnership will have exactly the opposite impact.

"Virtually all economic analyses of the proposed TPP … provided empirical arguments that the TPP would raise U.S. workers' income, both for highly educated and less educated workers," according to Jeffrey Bergstrand, finance professor at the University of Notre Dame and a former Federal Reserve economist.

Even TPP's most ardent supporters concede that it had flaws; some, for example, argued that it didn't go far enough in protecting intellectual property of U.S. companies, protecting worker rights or cutting red tape that restricts American-made products.

But scrapping the deal outright will leave American workers worse off, according to trade experts like Bergstrand.

Maintaining higher U.S. tariffs on Asian products will increase prices for American consumers, they contend. And without the benefit of lower trade barriers to Asian markets, U.S. companies will have a harder time competing with other countries as they try to boost U.S exports to the rapidly growing TPP economies.

Losing out on that growth potential "may leave the U.S. economy worse off than it otherwise would have been," according to Doug Lippoldt, a trade economist at HSBC Global Research.

Trump's campaign promises to renegotiate or scrap global trade deals like the TPP resonated with American voters based on the president's assertions that free trade has destroyed millions of American jobs and depressed wages.

"We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs," he said in his gloomy Inauguration speech last week.

But simply taking a tough stance on trade won't help Trump fulfill his pledge to create more high-paying factory jobs in the U.S. That's because millions of manufacturing jobs have been lost to automation, not trade deals.

Offshoring once played an important factor. Since manufacturing employment peaked in 1979 at nearly 20 million, some 8 million of those jobs have been lost to automation and cheaper foreign labor markets. Those losses accelerated after the 2001 recession, when competition from China surged, according to MIT researchers, who estimate some 2.0 million to 2.4 million jobs left for China between 1999 and 2011.

But while the level of U.S. manufacturing employment has fallen by roughly a third, overall manufacturing output has doubled, thanks to a surge in productivity brought by increased automation, better supply chain management and other efficiency improvements. Those upgrades aren't going away.

As a result, U.S. manufacturers are able to make more of their product with fewer workers. While improvements in productivity have slowed in recent years, those decades of efficiency upgrades aren't going away.

That means it's unlikely that the U.S. will restore the bulk of lost manufacturing jobs, no matter how many deals Trump can pull off, according to Drew Greenblatt, owner of Baltimore-based Marlin Steel.

Greenblatt had already begun seeing a revival of U.S. manufacturing — even before Trump took office. He's invested heavily in automation, boosting both his company's productivity and the wages of the highly skilled workers who operate that equipment.

For employers like Marlin Steel, that presents a new set of challenges helping to train workers to fill the new high-skilled jobs created by the hoped-for renaissance in U.S. manufacturing. And government, Greenblatt said, needs to play a role.

"We're going to have to invest in getting our eighth graders and high school grads to do well with math so they can be viable," he said. "We're not going to create the grunt work of yesterday; that's not our future."

Marlin Steel's Drew Greenblatt is shown in Baltimore, Dec. 10, 2014.
Matt McClain | The Washington Post | Getty Images
Marlin Steel's Drew Greenblatt is shown in Baltimore, Dec. 10, 2014.

In the meantime, pulling out of the trade deals like the TPP won't stop the ongoing rise in emerging Asian economies and cross-border trade between those countries.

TPP was intended to ensure that the U.S. played an important role in that growth. Now, as the U.S. pulls out of the deal, China is ready with a replacement, the Regional Comprehensive Economic Partnership, which notably does not include the U.S.

China's readiness to step into the vacuum left by Trump's order to scrap the TPP was underscored recently by Chinese President Xi Jinping in a widely watched address this month at the World Economic Forum in Davos, Switzerland

"Whether you like it or not, the global economy is the big ocean that you cannot escape from." Xi said in a nearly hourlong speech. "We will open our arms to the people of other countries and welcome them aboard the express train of China's development."

In other words, China is ready to keep working to promote global trade even if the U.S. reverses course, according to Carl Weinberg, chief economist at High Frequency Economics.

"Consider the message delivered: Walk away from global trade if you wish, President Trump, but be wary of those who pick up the mantle of leadership as you throw it away," Weinberg wrote in a note to clients this week.

So far, Trump's strategy has relied on tweeted threats to slap tariffs on U.S. companies that expand production outside the U.S. and browbeat them on Twitter to build more factories at home.

But as long as U.S. manufacturers can boost output with automation, they may not need more factories to increase output to keep up with demand.

"When those manufacturing jobs come back, they're going to be different jobs," said Greenblatt, "and there will be less of them because we're so much more productive that we used to be."

"You're going to have an American worker making 80 grand a year — one guy running a robot — rather than 10 Chinese workers in a room doing it by hand. We're not going to get the 10 jobs coming back from China."