Trump’s tariffs won’t cure wrongs of past trade deals

We constructed trade policy to make it as easy as possible to bring in manufactured goods from China and other developing countries with low-cost labor.

By Dean Baker

There are two simple points about current trade debates that everyone should know. First, our trade policy did enormous harm to large segments of the country’s working class. Second, the Trump tariffs and plans to “reindustrialize” America won’t improve the situation.

There is a huge amount of dishonesty in public debates about the impact of trade policy. Many proponents of our trade policy insist that the loss of manufacturing jobs was simply the natural course of events as the sector became more productive and consumption turned increasingly from goods to services. Their showpiece is a graph that shows a more or less steady decline in manufacturing employment as a share of total employment from 1970 to 2010. The timing of NAFTA and China’s entry into the World Trade Organization barely make a dent in this picture.

However, there is another graph that tells a very different story. It shows that the number of jobs in manufacturing fell only modestly from 1970 to 2000. There are cyclical ups and downs, but manufacturing employment fell by only around 200,000—or 2%—over this 30-year period.

The picture looks very different when we get to 2000. From 2000 to 2007, before the start of the Great Recession, we lost almost 4 million manufacturing jobs, more than 20% of the total, as the trade deficit exploded. If we add in the jobs lost in the Great Recession, the loss was 5.8 million, more than one-third of the total.

Rust belt states fared worse. Ohio lost 39% of its manufacturing jobs; Michigan lost 45%.

It’s also important to point out that this was not the result of free trade policies, even if they were routinely called “free trade” in policy discussions. We deliberately constructed trade policy to make it as easy as possible to bring in manufactured goods from China and other developing countries with low-cost labor, with the predictable effect on the jobs and wages of manufacturing workers here. However, we did not apply “free trade” policy to the services provided by highly paid professionals, like doctors and dentists.

We could have designed trade agreements that made it as easy as possible for students in other countries to train to our standards and then practice medicine or dentistry in the same way as people educated here. This would have produced gains from trade in the exact same way that removing tariff barriers on shoes or steel does. We could even show the gains with the same graphs. We would just need different labels.

As a result of our continued protectionism of highly paid professionals, our doctors earn on average more than $350,000 a year, twice what their counterparts in Western Europe or Canada earn. If we paid our doctors the same as doctors in these countries, it would save us close to $150 billion a year or more than $1,000 per household.

We also made government-granted patent and copyright monopolies longer and stronger. This hugely increased the amount of money going to people in a position to benefit from these policies at the expense of higher prices for everyone else. In the case of prescription drugs alone, we will spend over $700 billion this year on drugs and other pharmaceutical products. This comes to $5,000 per household for drugs that would likely sell for around $100 billion in a free market without these protections. Incredibly, in policy discussions, language was turned on its head and these government-granted monopolies were referred to as “free trade.”

Though past trade deals did serious harm to the working class, we cannot turn back the clock. It is the reality that productivity growth and a shift to service consumption have led to a declining share of manufacturing employment everywhere, even in countries such as Japan and Germany with large trade surpluses. By my calculations, if we balanced trade entirely by increased manufacturing production, as opposed to more exports of services or agricultural goods, the share of workers employed in manufacturing would rise from the current 8% to just 9%. That’s not exactly transformational.

More important, manufacturing jobs are no longer especially good jobs. In 1980, almost one-third of manufacturing jobs were unionized. Today that figure is 8%, only a little higher than the 6% average for the rest of the private sector. As a result, the manufacturing wage premium, the difference between what workers earn in manufacturing compared with other sectors, has largely disappeared.

This means that the Trump tariffs are about inflicting serious short-term pain on the public for a scenario that in the best case leads to a modest gain in manufacturing jobs, which pay no better than the jobs they replace. That’s not much of a strategy.

Dean Baker, a macroeconomist, co-founded the Center for Economic and Policy Research. He is the co-author of “Getting Back to Full Employment: A Better Bargain for Working People” and “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to make the Rich Richer.” He was formerly a senior economist at the Economic Policy Institute.