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Trump vows to be tougher on trade, but would that create jobs?

Shift in thought

Tuesday’s election won't kill international trade. But the president-elect's promise to unleash huge growth with better trade deals raises questions. 

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    On the campaign trail in Monessen, Pa., in June, Donald Trump laid out seven steps he would take to get better trade deals.
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When the Associated Industries of Massachusetts held its global trade symposium last month, the panel of businesspeople were supposed to speak on the subject “tough times for trade.” Instead, they were remarkably upbeat.

China? “It provides us tremendous opportunity,” said one attendee.

Brexit? The British market has growth potential, another said.

Mexican border wall? “We develop relationships that go through the years, not just the ebbs and tides of what global trade may do,” added a third in a followup interview.

Whatever the shock of a Donald Trump presidency, international sales are going forward, container ships are sailing, and foreign trade will continue. But Tuesday’s election has injected huge uncertainty into its future direction.

Mr. Trump's bigger problem is that even if he succeeds in getting the better trade deals he seeks, they won’t deliver the jobs he wants, economists say. Economists have detected sweeping employment losses and lower wages because of trade with China have also found that automation is a much bigger driver of job loss. Economists have also shown that the losses from trade have been aggravated because the United States economy is not as resilient as it once was and is far slower to bounce back.

Fixing these twin problems – the challenge of automation and a less resilient economy – won’t come from any trade deal. It would seem to require labor-adjustment policies that the GOP has traditionally opposed, calling them big government giveaways. Hardly the conventional Republican, Trump would appear to have a freer hand to address these problems. But it’s anybody’s guess whether he will.

“The effect of a Trump election is going to be a huge uncertainty,” says Robert Lawrence, a professor of international trade and investment at Harvard’s Kennedy School in Cambridge, Mass.

"It's a wait-and-see," says a senior officer of one large New England exporter, who asked not to be named. 

The reason: Trump's campaign has been light on specifics.

Seven steps

Even on a signature issue like trade, Trump has been hazy about details. The closest he came to specifics was in a speech on trade in June in Monessen, Pa.

He laid out seven steps he would take. Four of them involve taking a much tougher stance with trade partners, especially China, when they violate trade laws that hurt American workers. The US trade representative could bring trade cases against China, for example. And Trump could have China labeled a currency manipulator.

The focus on China is needed, many trade critics say, because it has in the past manipulated its currency and its accession to the World Trade Organization greatly accelerated imports into the US. According to a 2013 study, Chinese imports caused 25 percent of the manufacturing employment losses between 2000 and 2007, nearly 1 million workers, and depressed wages even in non-manufacturing sectors of the economy. Many US companies have filed charges and complaints about Chinese theft of trade secrets.

Another Trump step is to appoint “the toughest and smartest trade negotiators to fight on behalf of American workers.”

The last two steps involve scrapping two trade deals.

One of them, the Trans-Pacific Partnership, negotiated between the United States and 11 nations around the Pacific Rim, faced an uphill battle in Congress, no matter who won the presidency. Trump has promised to kill it.

That’s a blow to increased world trade but hardly the end of the world.

“Trade is slowing and trade deals are becoming less popular, but the driving forces of investment are going to continue,” says Ted Moran, nonresident senior fellow with the Peterson Institute for International Economics, a Washington think tank. “If Europe, Canada, Japan, and Korean firms continue to invest … American firms are going to have to match their moves.”

The other trade deal in Trump’s sights is more concerning. He wants to renegotiate the North American Free Trade Agreement (NAFTA), which has regulated trade among the US, Canada, and Mexico for 22 years. If he can’t renegotiate a much better deal for American workers, he says he intends to withdraw from it.

Trump, the author of “The Art of the Deal,” knows you can’t reopen a deal without some kind of leverage: either a carrot or a stick.

For Trump, it seems to be a stick.

No more Mr. Nice Guy?

One possibility, of course, is that Trump ditches his campaign rhetoric and follows far more traditional Republican policies once he reaches the White House. Many corporations are hoping he'll follow that course. But if Trump's campaign rhetoric is to believed, then he appears to be pointing to a new approach to US trade, one based on the principle that creating and preserving US jobs would be paramount. 

Since the end of World War II, both Republicans and Democrats have promoted globalist trade policies that lower tariffs and set fair and transparent rules for how the world exchanges goods – a regime that has increased Americans’ incomes by an estimated $1 trillion a year.

But starting with NAFTA, US negotiators also increasingly pushed for labor, environmental, and social standards in trade deals. That's in line with Democrats' desire for standards that discourage foreign sweatshops, make foreign governments act more transparently, and level the playing field for US workers who already have those protections. TPP was the poster child for this new kind of deal.

Conservatives have balked at these measures, especially when they take away power from legislatures to determine their own rules and standards.

Now, such goals would take a back seat.

For some critics of trade policy, Trump should be even more assertive. “It behooves the US to move toward a more unilateralist trade policy stance,” says Alan Tonelson, an economic policy analyst who blogs at RealityChek. “Access to the US market is not a right that any country deserves a priori. It is a privilege granted by Washington.”

For those who see trade through a global lens, the Trump rhetoric is retrograde.

“For people who believe in economic internationalism, this is terrifying,” says Susan Aaronson, research professor of international affairs at George Washington University in Washington.

The obvious danger is that threatening the use of tariffs could easily prompt other nations to issue countertariffs in a replay of the disastrous trade wars sparked by America’s Smoot-Hawley tariffs in 1930.

The more subtle challenge is if better terms of trade don’t deliver the job growth that Trump expects. If it doesn’t, he may have to expand America’s paltry programs for assisting and retraining workers hurt by trade.

"The United States should be known not just as a country of labor flexibility where it's easy to hire and fire, but a country of genuine labor mobility, so that workers can acquire new skills, enter new fields and tap on economic opportunity that comes with geographical mobility," said Mireya Solís, a senior fellow of foreign policy at the Brookings Institution, at a trade debate in held in Washington last month. "And this calls for a host of social and labor market policies, wage insurance, retraining, expanded tax benefits for the working poor."

Conventional Republicans reject such big government solutions. Unconventional Trump has yet to weigh in.

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