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Is Donald Trump Serious About Trade, Or Anything?

By       Message Dean Baker       (Page 1 of 1 pages)     Permalink    (# of views)   1 comment

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Reprinted from Smirking Chimp

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One of the main themes of Donald Trump's presidential campaign has been the idea of getting tough with our trading partners. He has attacked President Obama and his predecessors for negotiating bad deals. Trump promises to get tough with the Chinese, Mexicans, and other trading partners and thereby bring jobs back to the United States.

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While many working people would agree that recent trade deals have not benefited them, they have good cause to be skeptical about Trump's get tough promises. Most immediately his vice-presidential pick, Governor Mike Pence, has been a strong supporter of NAFTA and other trade deals. But choosing vice-presidents with differing views certainly has precedents.

More importantly, it is not clear what Trump thinks he is going to do when he gets tough with the Chinese and the other bad guys in his story. It's true that China and Mexico and many other countries are running trade surpluses with the United States. And it's also true that these surpluses have cost the jobs of millions of workers. In some cases these workers have been able to find new jobs, generally at much lower pay. However in many cases these workers remain unemployed and end up dropping out of the labor force altogether.

The trade deficit poses an especially severe problem in the context of secular stagnation: a situation in which the economy faces a sustained shortfall in demand. In the years prior to the collapse of the housing bubble most economists did not take the idea of a secular stagnation seriously. Their view was that if we saw a loss of demand due to a trade deficit, we could simply make it up with increased demand from consumption or investment spending.

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Fewer economists hold this view eight and a half years after the collapse of the housing bubble threw the economy into a recession. While we clearly have seen enormous improvements in the labor market from the low-points in 2009 and 2010, by most measures the labor market has still not recovered to its pre-recession condition.

It is no longer credible to say that we don't have to worry about a large trade deficit because the economy will just generate demand elsewhere to fill the gap. This is clearly not true.

While we may be able to agree that a $500 billion-plus trade deficit (@3.0 percent of GDP) is a real problem, the question is what does Donald Trump propose to do about it? He might be a tough guy and all that, but it isn't clear that he even knows who has to get tough with.

Trump seems to think the problem is that other countries are pulling fast ones on our "stupid" trade negotiators. They aren't. The problem is that our trade negotiators are not focused on reducing the trade deficit.

Let's take the case of China, where we have the largest trade deficit. Our trade negotiators are not especially focused on the trade deficit with China. They want China to grant more access to its financial markets to Goldman Sachs and other banks. They want also want more access for our telecommunications companies, our insurance companies, and our retail and restaurant chains. They want China to do a better job enforcing Microsoft's copyrights and Pfizer's drug patents.

When it comes to our trade deficit, our trade negotiators are getting conflicting signals. Unions and workers in the U.S. would like China to raise the value of its currency to reduce its competitive advantage. But GE and other U.S. companies that produce goods in China and export back to the United States aren't anxious to see their costs rise due to a higher valued Chinese currency. The same logic applies to Walmart that has spent years developing a low-cost supply chain in China and other developing countries.

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So if Trump thinks this is a story of beating up China he has missed the boat. It's a story first and foremost of beating up the U.S. corporations that profit from the trade deficit with China. And, it means telling a lot of other companies that their concerns are going to take a back seat in negotiations with China, since our priority is getting the trade deficit down.

If Trump understands this reality he has done a good job of hiding it. If he doesn't understand the realities of trade, then he is not likely to be able to improve the situation for working people in the United States.


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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)

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