Jobs vow comes with asterisk
IF YOU call something “the worst trade deal maybe ever signed anywhere”, you kind of have to get rid of it when you have the chance. So it seems like only a matter of time before US President Donald Trump really does begin to pull the country out of the North American Free Trade Agreement so that he can try to negotiate a presumably “great deal” to replace it. The question, though, is what kind of deal this will be for US workers. And the answer may be not much of one.
Now, if you listen to populists of the right- or left-wing variety, everyone from Ross Perot to Bernie Sanders, and Trump himself says there’s one reason that we’ve lost so many manufacturing jobs. It’s that the government has forced blue-collar workers to compete on unfair terms with people from much poorer countries.
“Our politicians,” Trump thundered during the campaign, “have aggressively pursued a policy of globalisation, moving our jobs, our wealth and our factories to Mexico and overseas.” It was a familiar litany of acronym-filled woe: NAFTA, China joining the WTO, and the TPP.
“Trade reform and the negotiation of great deals,” Trump went on, “is the quickest way to bring our jobs back to our country.”
There’s only one problem with this. It isn’t really true. Trade deals matter, but they don’t matter that much. What does is how strong or weak the dollar is. This isn’t to say that NAFTA, for example, has had no effect on our economy. It clearly has. Indeed, a decent chunk of our manufacturing base has migrated south of the border the past 24 years. Even the most pessimistic estimates from the left-leaning Economic Policy Institute say that it cost us something like 400,000 manufacturing jobs.
Why, then, haven’t we been able to keep as many of our manufacturing jobs? Blame the dollar.
It started when then-Federal Reserve chairman Paul Volcker sent the dollar soaring by jacking up interest rates in his successful bid to whip inflation in the early 1980s. It continued when president Ronald Reagan’s tax-cut-fuelled deficits forced the Fed to keep rates higher than it would have for the rest of the decade. It went further after the International Monetary Fund bungled its East Asian financial crisis bailout so badly that emerging markets started stockpiling big war chests of dol- lars – pushing their value up – to save themselves from the same fate. And it’s gotten going again now that the Fed is raising rates at the same time that the rest of the world is cutting them or even printing money.
The point is that a more expensive dollar makes US exports more expensive overseas, and more-expensive exports can only be competitive if they become cheaper by moving production to lowercost locales. That has been a bigger deal than the one we’ve struck with Mexico and Canada. Cutting tariffs by 5 or 10 percent just doesn’t matter as much as the dollar shooting up 20 or 30 percent.
Which is to say that getting rid of NAFTA won’t bring back many factory jobs if the rest of Trump’s policies push the dollar up even more – which they probably will. That is, assuming Trump does in fact increase infrastructure and defence spending at the same time he slashes taxes for the rich and corporations. Just like the 1980s, the resulting deficits would force the Fed to raise rates more than it expected, and send the dollar up more than our exporters could afford.
Even the best trade deal maybe ever signed anywhere wouldn’t change that. Sad.