Presidential debate shows how divisive trade has become
Washington — The issue: Free trade has become a ripe target in the U.S. presidential campaign.
At Monday's debate with Hillary Clinton, Donald Trump declared the need to renegotiate trade deals because U.S. trading partners are “taking our jobs.”
For her part, Clinton, too, is opposing a major Pacific Rim trade deal negotiated by the Obama administration.
Their opposition resonates with many voters: In this angry election year, Americans are deeply skeptical of free trade — or hostile to it.
The backlash against trade threatens a pillar of U.S. policy since World War II: Through trade pacts and institutions like the World Trade Organization, the United States has sought to rip down barriers to global commerce, including quotas and taxes on imports.
Economists argue that the benefits of free trade outweigh the costs. Imports cut prices for consumers. And exposure to foreign competition makes American companies and the overall U.S. economy more efficient. Free trade, it was widely believed, paid off.
But doubts grew, especially as China emerged as an economic power. China overwhelmed the world with hundreds of millions of low-paid factory workers who could crank out products for less than just about anyone else. And critics charged that China didn't play by the rules — unfairly subsidizing exporters, manipulating its currency to give them a competitive edge and condoning the theft of U.S. trade secrets.
Whatever the reasons, the United States last year ran a $334 billion trade deficit with China — a big chunk of America's $500 billion total trade deficit.
Even some economists are having second thoughts about free trade. David Autor of the Massachusetts Institute of Technology, Gordon Hanson of the University of California, San Diego, and David Dorn of the University of Zurich looked at the American workers most exposed to competition from China.
They encountered an unpleasant surprise: Instead of finding jobs in newer, growing industries, as economic theory dictated they would, Americans who were thrown out of work by the “China shock” bounced from job to job and suffered a drop in lifetime pay. China's rise has “challenged much of the received empirical wisdom about how labor markets adjust to trade shocks,” they concluded.
Where they stand
Trump and Clinton both oppose the trade agreements that are a hallmark of U.S. economic policy. Clinton has broken with President Barack Obama by opposing the Trans-Pacific Partnership, an agreement that Obama's administration forged with 11 Pacific Rim countries (excluding China) and that awaits congressional approval. Awkwardly for Clinton, her position represents a change: When she was Obama's secretary of state, she had called the Trans-Pacific Partnership the “gold standard” for trade deals.
Trump vows to tear up existing trade deals, such as the North American Free Trade Agreement with Mexico and Canada — “the worst single trade deal ever approved in this country,” he said Monday night. He also says he'll slap huge tariffs on Chinese imports and on American companies that make goods overseas and then ship them back to America.
He traces America's economic problems to unfair trade deals reached by clueless U.S. negotiators outfoxed by craftier foreigners. The author of “The Art of the Deal” says he can do better.
Why it matters
Foreign competition is one reason America has lost 3.4 million factory jobs since China joined the World Trade Organization and became a bigger part of global trade in 2001. It's also partly responsible for stagnant American wages. Adjusting for inflation, U.S. households earn less than in 1997.
But trade isn't the only culprit: Technology has allowed factories to cut jobs and still increase production.
Despite the campaign rhetoric, trade deals have far less effect on jobs than do such forces as automation and wage differences between countries. The Pacific deal, for instance, probably would have a negligible impact on American employment, the International Trade Commission has concluded.
Trump's plans to impose punitive tariffs would risk triggering a trade war and driving up prices for American consumers. The Peterson Institute for International Economics, a nonpartisan but pro-free-trade think tank, issued a report this month saying Trump's proposals could “plunge the U.S. economy into recession and cost more than 4 million private sector jobs.” Pulling back from trade agreements could also reduce America's diplomatic influence. The Pacific agreement, for instance, is aimed partly at countering China's clout in Asia.