Candidate Biden right on trade policies
After an eightmonth review of the United States’ trade policies toward China, the Biden administration has concluded that Donald Trump was right and Joe Biden was wrong. On the campaign trail, Biden relentlessly attacked Trump’s tariffs on Chinese goods, calling them “disastrous.” Now, he has adopted those same “disastrous” policies.
But candidate Biden was right: Trump’s tariffs did not work. China’s behavior did not change, high-wage jobs did not come back and, while the U.S. deficit with China decreased, this caused the overall U.S. trade deficit to go up. Beijing responded in kind, slapping its own tariffs on American goods. One 2020 study found that “approximately 100%” of the costs of the U.S. tariffs against Chinese goods were paid for by American consumers and businesses. A 2021 study found that the tariffs cost the U.S. economy up to 245,000 jobs.
Trade policy in Washington has become a bipartisan ideology driven by a set of unquestioned assumptions. But, as Adam S. Posen, president of the Peterson Institute for International Economics, points out in a brilliant Foreign Affairs essay, all these assumptions are wrong. We have embraced the dogma that, over the past two decades, America opened up its economy to the world and that American workers suffered as a result. But the facts show the opposite. Posen writes, “(The United States) has increasingly insulated the economy from foreign competition, while the rest of the world has continued to open up and integrate.” He adds, “the country suffers from greater economic inequality and political extremism than most other high-income democracies — countries that have generally increased their global economic exposure.”
Much of the impetus for protectionism in general, and toward China in particular, has come from claims that trade with China was responsible for about 2 million U.S. manufacturing jobs lost — the “China shock.” That sounds like a huge number until you put it into context. The number is for the period 2000 to 2015, so the average number of jobs lost each year was around 130,000.
How many jobs do American workers lose in a typical year through the normal churning of the U.S. economy? 60 million. Of those, a third are voluntary and a third can be attributed to causes not related to foreign trade, such as an employer closing or relocating — leaving a third, 20 million, caused by external shocks. “In other words,” Posen writes, “for each manufacturing job lost to Chinese competition, there were roughly 150 jobs lost to similarfeeling shocks in other industries.”
Posen points out that only about 16% of non-college-educated workers are employed in the manufacturing sector. And much of the decline in manufacturing jobs, if not most of it, can be attributed to changes in technology, rather than trade. The United States’ manufacturing output keeps rising, even as the number of workers it takes to produce those products has fallen over time.
This is not just a U.S. trend. Posen’s institute produced a chart tracking manufacturing employment in Ohio over the past three decades and compared it to Germany’s North Rhine-Westphalia — a similarly important manufacturing region. Unlike the U.S., Germany has a trade surplus. It provides much governmental assistance for manufacturing, which is seen as the heart of the German economy. Yet, the job losses are even more pronounced in Germany.
It is also worth noting that manufacturing jobs in the U.S. are held mostly by white male workers. A policy that obsessively focuses on them devalues the many good jobs in other sectors, where more women and minorities work. These groups, being poorer, are also disproportionately affected by the higher cost of tariffed goods.
Posen points out that the chief reason for many U.S. economic inequities and discontents is not open trade, but stingy domestic spending. He argues that all workers would gain from a more secure safety net, one in which such benefits as health care are “portable,” meaning not tied to employment. That is where misguided market economics have distorted public policy.
Writing all this sometimes feels pointless. Protectionism has become one of those zombie ideas that continues to move forward, despite all the evidence showing them to be wrong. Most worryingly, it is part of a sea change in basic outlook in the U.S. From an optimistic and confident view that we can thrive in a world in which others also do well — a view borne out by the data — we are now retreating to a cold, curdled view of international life, one that is dark and zero-sum, in which we search for villains to blame for our problems. It’s a world in which we try to gain some narrow benefit for ourselves by cheating everyone else. In other words, it is the Donald Trump way.