Does Trump’s Trade Talk Make Sense?

Donald Trump isn’t the only one, but he, more insistently than anyone else these days, promotes the idea that the U.S. has made a series of bad trade deals, as a result of which great jobs have been “lost” to other countries. He, as president, will somehow bring them back.

Manhattan Contrarian offers what I think is a more realistic view:

[In a recent interview,] what Trump did was repeat, over and over, the same line: “We’re going to bring the jobs home.” By my count, he uttered that line at least half a dozen times in the half hour, and that was the beginning and the end of what he had to say about economic policy. …

Unfortunately, I think that many or most Trump voters actually believe that we are somehow “losing” in the arena of international trade, and that there is something a President can do to change that. …

How would you measure whether we are “losing” to another country in international trade? Me, I would start with per capita GDP. That statistic would basically tell you which country’s workers have the higher-value jobs, and by how much. So how does the U.S. stack up against China and Mexico in per capita GDP? [Using] the IMF numbers, … the answer is: US per capita GDP for 2015 is $55,904; Mexico is $9,592; and China is $8,280. Whoa! That’s saying that people in the U.S., on average, are close to six times as productive as Mexicans, and almost seven times as productive as Chinese. I would submit that any rational person would conclude that we are killing them in the international economic competition. Indeed, it’s not remotely close. …

Are these jobs that are one-sixth or one-seventh as productive as our jobs the ones that Trump plans to “bring home”? Another way of looking at that is that Mexican and Chinese jobs are not productive enough to support a wage as high as the U.S. minimum wage for any but a tiny percentage of their workers. How could it possibly be a good thing to bring those jobs here?

When he has been asked to specify the jobs that he thinks should be done in the U.S., Trump has sometimes referred to automobile assembly line jobs that have gone to Mexico, or computer assembly that is now done largely in China. These of course are about the lowest-value jobs in the automobile and technology sectors today. Think about what goes into a car or a computer today, and you immediately realize that there are zillions of much higher value jobs that the rational country would greatly prefer to have. Which is a better job, designing the new sensors that will keep cars from crashing into each other, or snapping the same two pieces together on an assembly line two hundred times a day every day of the year? Creating a new computer chip to maximize gas mileage, or screwing on door handles all day long? I say, good luck to the Mexicans and Chinese with those rote assembly jobs. Within our lifetimes, they will mostly be done by robots.

I couldn’t agree more with this observation:

I have a fundamentally different diagnosis from Trump as to the basic economic problem of the U.S. The problem is not that good jobs are moving abroad as we “lose” to other countries. The problem is that our own job-creation machine is not working at the pace that it should. And that, in turn, has little to nothing to do with international trade policy, and everything to do with what I have called the “war against the economy” being waged by our government domestically.

Amen. A perceptive reader adds:

Yes, exactly; what jobs are “coming back”? ANSWER: the very lowest value-added activity in generally low value sectors. We will “beat” China in the strategic bra and panty, dog collar and bobblehead industries, boy! Apple?….90% of the value-added is the design, software, marketing and engineering. But we’ll do the assembly here, so prices can triple. Great move!

That’s aside from the fact that they can retaliate. The Chinese!….who knew? Wait until the soybean farmers all over the midwest find out that their market has been wrecked, for starters.

And then there is the absolute fact — it is an accounting identity — that every dollar of trade deficit is exactly offset by a dollar of capital surplus. So we “get” a capital surplus of over $300 billion a year from China and over $200 billion a year from elsewhere: Canada, Mexico and the EU. That $500 billion nearly overlaps with the federal government’s operating budget deficit.

Who do the Trumpen-proletariat getting their Medicare and Social Security payments think the financing comes from?

The idea that past trade agreements like NAFTA are bad for the United States and have caused us to lose desirable jobs is, I think, wrong. It is possible, on the other hand, that the Trans-Pacific Partnership is a bad deal. It is so impenetrable that as far as I can tell, no one fully understands what is in it. TPP appears to be another pass it to find out what it means proposition. I would be happy to say No to it. But the idea that President Trump, or President anyone else, is going to “bring back” millions of jobs is a fantasy.