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Thursday, August 4, 2016

Protectionism Will Not Relieve the Plight of the Working Class

Trump’s trade policy won’t boost American employment, but it will tank our economy

Donald Trump is worried about working-class men in this country.

He’s not wrong to be worried. “The problem of labor market non-participation is particularly severe among men,” writes Eli Lehrer, president and co-founder of the R Street Institute, for National Affairs.

Since the 1950s, the percentage of men who are in their prime working years who do not work has more than tripled. Since then, while men’s workforce participation rates have consistently fallen, women have increased their labor participation. In 1948, women made up less than a third of the workforce. Today, women comprise almost half of all workers.

In 1950, a quarter of all workers worked in manufacturing. In 2015, that number was 8%.

Why? We have outsourced and automated most of our low-skill jobs.

So if outsourcing is the problem, isn’t insourcing the solution?

“People who are not economists often believe, incorrectly, that the United States can never compete with countries like China, where labor costs are a fraction of those here,” Bruce Bartlett wrote presciently for the New York Times in 2013. “This leads them to think that tariffs and import restrictions are an appropriate policy response.”

Donald Trump is among these people. He blames international trade, which he derides as “globalism,” for the plight of the low-education American male. He’s promised to jettison any trade deals that might result in job losses for American workers.

One problem with Trump’s analysis is that robots have done at least as much, if not more, to eliminate agricultural and manufacturing jobs in the US than outsourcing.

“Job losses due to automation and robotics are often overlooked in discussions about the unexpected rise of outside political candidates like Trump and Bernie Sanders,” Moshe Vardi, an expert on artificial intelligence at Rice University, told GeekWire.

A recent study showed that 85% of the job losses in manufacturing from 2000 to 2010 resulted from productivity growth, not outsourcing. The Center for Business and Economic Research at Ball State University found that in that period 5.6 million factory jobs disappeared, but trade accounted for just 13% of those job losses.

And the robots aren’t done yet. Up to 47% of all US jobs could be automated within the next two decades, according to estimates by Oxford University researchers.

The second problem is that trade enriches the US.

Global trade makes us richer by making our workers more productive.

Global trade means that even if the factories are located in different countries, they can still compete with each other. Which means China’s innovations can incent US productivity.

At the same time, as global trade incentivizes greater worker productivity, it lowers the cost of producing goods. You cannot do one without the other.

James Capretta:

“America’s workers benefit immensely from access to goods and services made in other countries. On average, access to these goods provides a 29 percent increase in the purchasing power of the average American household. The 500 largest US companies earn about half of their combined revenue from their international operations. The average US worker earned $1,300 more annually over the past two decades owing to US access to international markets.”

If trade is so great, why don’t people like it more?

Because the drawbacks are brutal, readily apparent, and easy to understand while the benefits are less intuitive, more complicated, and harder to measure. You can see a closed factory and a lot of “For sale” signs. You can’t see productivity gains.

People see and feel the negative impact of global trade when their factory closes and they can’t sell their house because everyone else is trying to move away at the same time because there’s nowhere else to work in their tiny town.

As horrible as that is for the people impacted, most people do get other jobs. In the 1800s, 80% of the US labor force worked on farms. By 1945, 16% of the total labor force worked in agriculture. In 2014, that number was less than 2%.

When agriculture labor shrank to almost nothing, what happened to all those workers and all those farms? “Obviously mechanization didn’t destroy the economy,” author and entrepreneur Martin Ford told WIRED. The vast majority found more productive ways to spend their days, and the fields found more productive uses as well.

We’re producing more than ever before.

Manufacturing employment has been falling for more than 30 years, but US manufacturing output is near its all-time high. According to the LA Times, over the last 20 years US manufacturing has seen real, inflation-adjusted output increase by almost 40%. “Annual value added by US factories has reached a record $2.4 trillion.”

Rather than race to the bottom to depress wages, US businesses have instead poured their resources into building robots that help make American workers get more done in less time. Instead of making shoes and shirts, American factory workers refine petroleum, produce prescription drugs, fabricate metals, work with plastics, and build cars, planes, and aerospace equipment.

The US has better technology and our workforce has more skills and education than China. That means we offer the world millions of better-quality, more consistent products than China can offer at the same price. And we’re better paid as a result. Total manufacturing payrolls have risen over the last decade even though we’ve employed fewer workers.

Most people do not notice, recognize, or appreciate economic growth.

Free trade is like air. You don’t notice it until it’s gone, but when it’s gone, you notice in a hurry.

None of this is mere theory. We know how trade restrictions work because we’ve tried them before.

Europe tried it. In the 18th century, various countries implemented a trade theory called mercantilism. Instead of competing to achieve the highest productivity and the lowest prices, countries competed to see who could make trading with them least appealing. Not shockingly, the result was higher prices and lower productivity.

Perhaps thinking that what worked long-term for no European country ever would work for the US, Herbert Hoover signed the Smoot-Hawley Tariff into law in 1930. It artificially raised prices for imported goods in order to protect US businesses from overseas competition. Unfortunately, America’s trading partners did not appreciate the American government making it more difficult for Americans to buy their goods. So they artificially raised the price of American-made goods. In the end, according to Ben Bernanke, “Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.”

“In the 19th century, this penchant for industrial protectionism and mercantilism became guild socialism, which mutated later into fascism and then into Nazism,” Jeffrey Tucker once wrote. By restricting trade to try to unfairly advantage US businesses, the US government not only failed to do so, but inadvertently helped incentivize countries to try guild socialism in retaliation. How interesting that the catastrophic economic mistake that helped give birth to fascism in Europe has been given new life by a wannabe fascist dictator in the US.

The US government did not succeed in strongarming nations into unfair trade deals in the 1930s, and it won’t do it today either.

Using government force to protect American workers from foreign competition will always lead to the same results – less trade. And possibly fascism. At the very least, America will once again lose out on the productivity gains and price decreases trade creates.

Watching poor Americans struggle is not easy.

The truth is that while most workers will find more productive jobs, some will not. All the cheap cell phones in the world can’t console someone who’s lost their job and can’t find another one.

High levels of debt, copious regulations, and high corporate taxes mean the American economy is not yet growing fast enough to absorb all of the workers displaced by global trade and automation. Trade does increase average worker productivity, but unfortunately that means workers who are not able to improve their own productivity are left out in the cold. When the factory closes and the 53 year-old diabetic factory worker with no degree, no computer skills, and a mortgage loses his job, no amount of Walmart’s everyday low prices will soothe that loss.

First we need to recognize that international trade has been an unmitigated success at increasing American prosperity on net.

But then we need to stop pretending that free trade is a good deal for everyone. Automation has displaced many workers, particularly those with low skills and low education. If we’re going to take advantage of the tremendous on-net benefits from trade, the least we can do as a country is to make sure everyone benefits on net.

We should replace our hole-ridden patchwork of wasteful welfare programs with a well-functioning safety net, one built on human volition rather than force and one that energizes the extraordinary generosity of the American people. This would be a much better move for the Americans displaced by trade than Trump’s disastrous plans.

Ironically, the very people who oppose a government-provided social safety net because they object to helping a small number of Americans at the expense of everyone else want to do exactly that by restricting trade. But unlike public assistance, trade barriers have a storied history of tanking economic growth.

Protectionism won’t bring back jobs.

If Trump gets his way, those jobs aren’t coming back. First, they’re not coming back because they never left. Unless Trump wants to go around smashing robots, repetitive, low-skill jobs are not the future of the American workforce. And thank God. Restricting trade to protect jobs is choosing lots of work and little money over lots of money and little work. Further, what’s ironic about Trump selling protectionist trade restrictions as a solution to American poverty is that protectionism raises prices on household necessities, which hits poor Americans first and hardest.

The only thing that is sure to happen as a result of the US erecting barriers to trade is that the US will trade less with the rest of the world. The US will not succeed in strongarming nations into unfair trade deals. Global trade will continue with or without the US.

We cannot sacrifice economic growth to protect jobs that are not productive by hamstringing our ability to take advantage of gains from trade. Doing so is sacrificing the entire country for a small group. Instead, we should take care of the people trade left behind, while innovating and growing the economy on net by trading with all nations.

  • Cathy Reisenwitz is a D.C.-based writer. She is Editor-in-Chief of Sex and the State and her writing has appeared in The Week, Forbes, the Chicago Tribune, The Daily Beast, VICE Motherboard, Reason magazine, Talking Points Memo and other publications.