How to Get the Trans-Pacific Partnership Through the Lame-Duck
What we all want in the United States is high economic growth, low unemployment, an end to manufacturing job loss, and a solution for economic inequality. The good news is that we can do all of this and that it can be paid for. The bad news is that some political elements will have to reconcile with their own past statements, interests and positions and then put an overall program into action. In today’s caustic political environment that will be difficult, but if we care about where our country is going, it is necessary.
Current trends in the United States have led inexorably to a form of isolationist nationalism that blames international trade and foreign influences for shortcomings in our general welfare. It is lower income, blue-collar workers who have been the most vulnerable to the employment consequences of international trade. That segment of society has clearly been abandoned by our political system. Unfortunately, the justifiable level of resentment in this segment has manifested in counterproductive demands. Implementation of tariff and nontariff trade barriers, as advocated by partisan advocates, will only accelerate the very trends that they seek to arrest. Only a realignment in terms of distributive justice can resolve this potentially malignant conundrum to the benefit of all segments of our society. A proposed solution is outlined here.
Strong economic growth can be used to address these problems and there are only three ways to significantly increase economic growth. These are increasing available resources, improving efficiency and productivity and engaging in international trade. While our resource growth occurs sparingly, the U.S. manufacturing sector is moving very quickly to increase efficiency and productivity through improvements in technology that require less human input. The degree to which this has affected overall manufacturing job loss is a matter of debate. Academic studies have demonstrated that as much as 85% of manufacturing related unemployment is the result of technology improvements in manufacturing processes. At the other end of the debate, interest groups such as the Economic Policy Institute (EPI), a labor-friendly think tank, have argued that it is international trade that has directly caused the loss of 1.4 million manufacturing jobs between 2007 and 2014. EPI attributes both the trade deficit and the resultant loss of manufacturing jobs to manipulation of foreign currencies, in particular manipulation by China.
It is true that the strength of the U.S. dollar hurts exports and enhances imports. There are 6.8 million jobs in the United States that are attributable to the export of goods. In promoting solutions to the overall trade deficit problem, we must be sensitive to the potential for losing export related jobs in protecting domestic manufacturing jobs. The 2015 U.S. trade deficit in goods and services was $531 billion. However, the goods deficit alone, which directly impacts manufacturing jobs, was approximately $759 billion.
In a normal economic world, the effect of having a large trade deficit would cause the value of the U.S. dollar to decline, which would make U.S. goods and services less expensive to the rest of the world. Because U.S. goods and services would be cheaper, the trade imbalance would self-correct. Exports would increase and imports would decrease in global trade. However, the U.S. economy is the platinum standard for global economies and thus, it is the place those nations with trade surpluses want to park their wealth. The U.S. dollar is also the world’s “reserve currency” which means virtually all international trade is denominated in U.S. dollars. As the global reserve currency, our international power, for instance in imposing trade restrictions on rogue nations, is greatly enhanced. Unfortunately, the effect of these factors is that, notwithstanding the deficit, the dollar won’t weaken and our trade deficit and related unemployment continues.