Trump’s Failure on Trade, The Issue His Working-Class Voters Largely Elected Him With

One way to increase the American economy’s demand — or the power to buy things in the economy, which is something that most workers (their wages largely stagnant) could have used much more of in the last 40 years — is through lowering the trade deficit. A trade deficit is currently reducing demand because that gap in American spending is creating jobs and demand in a foreign country such as China instead of the U.S.

Lowering the trade deficit to 1 percent of GDP from 3 percent of GDP would grant about the same increase to demand as a $400 billion stimulus package would.

Trump told his working-class voters that he’d improve trade inequities and therefore help them by reducing the trade deficit, which of course like many of his declarations turns out to have been a sham.

The latest data from the Commerce Department shows that the trade deficit rose again in 2018. The full–year trade deficit was $621.0 billion (3.0 percent of GDP), up from $552.3 billion in 2017, and from $502.0 billion in 2016, the last year of the Obama presidency. If we pull out oil and other petroleum products, the trade deficit looks even worse, increasing by more than $77 billion from 2017 to 2018.

The picture doesn’t look any better if we look at the specific countries that Trump has vilified. The trade deficit in goods with Mexico has increased by $17.6 billion or 27.5 percent since Obama left the White House in 2016. The deficit with Canada, Trump’s “enemy“ to the north, has increased by $8.8 billion, an increase of 80.0 percent. The trade deficit in goods with China has risen by $72.2 billion since 2016, an increase of 20.8 percent.

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The new China agreement does almost nothing about currency values, the most important determinant of the trade balance. After running around the country for two years complaining about China’s currency “manipulation,” there are no provisions in his new pact that would force China to raise the value of its currency against the dollar.

The sharp rise in the trade deficit in the last decade had a devastating impact on manufacturing workers and whole communities in large parts of the Northeast and the Midwest. We can’t hope to reverse this damage, as those jobs will not come back.

However, we could design a trade policy that would move us toward more balanced trade and create millions of relatively good-paying manufacturing jobs. Unfortunately, Trump’s policy seems to be going in the opposite direction.

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The Economy is Deliberately Rigged at the Expense of Most

The economy has been rigged to benefit the richest people at the expense of many of the poorest ones. The negative effects surrounding massive deindustrialization (most significant of which is likely tearing apart entire communities due to job losses and downward pressure on median wages) could have been significantly lessened with different governmental policies.

There have been several analyses of the 2018 election results showing that the Republican regions are disproportionately areas that lag in income and growth. In response, we are seeing a minor industry develop on what we can do to help the left behinds.

The assumption in this analysis is that being left behind is the result of the natural workings of the market — developments in technology and trade — not any conscious policy decisions implemented in Washington. This is quite obviously not true and it is remarkable how this assumption can go unchallenged in policy circles.

Just to take the most obvious example, the natural workings of the market were about to put most of the financial industry out of business in the fall of 2008. In the wake of the collapse of Lehman, leaders of both the Republican and Democratic parties could not run fast enough to craft a government bailout package to save the big banks, almost all of which were facing bankruptcy due to their own incompetence and corruption.

It is worth contrasting this race to bailout with the malign neglect associated with loss of 3.4 million jobs in manufacturing (20 percent of the total) between 2000 and 2007 (pre-crash). This job loss was primarily due to an explosion in the trade deficit. The latter was due to an overvalued dollar, which in turn was attributable to currency management by China and other countries, that kept their currencies below the market level.

While most economists now acknowledge the impact of China’s currency management, at the time there was a great effort to pretend that this was all just the natural workings of the market. The loss of jobs, and the destruction of families and communities, was not a major concern in elite circles, unlike the prospect of Goldman Sachs and Citigroup going bankrupt.

The decision to bail out the banks is routinely justified as being necessary to prevent a Second Great Depression. No one who says this has a remotely coherent story as to how the bankruptcy of these banks would have condemned us to a decade of double-digit unemployment.

We have known for 70 years how to get out of a depression (it’s called “spending money”). if the banks had collapsed, it would have undoubtedly worsened the 2008–2009 downturn, but nothing would have prevented us from boosting the economy back to full employment with a large burst of spending, just as the spending needed to fight World War II brought the economy to full employment in 1942.

Trade as Representing Class Interests Over Country Interests

Trade has often functioned as a way for the powerful to gain at the expense of others. Trade is something that could be incredibly good due to countries with different resources cooperating, but the record of the last several decades shows that trade is more about exploitation than improving the lives of the general population.

The economist and policy types who have been pushing the trade agenda of the last four decades often make assertions like “everyone gains from trade.” This is what is known in the economics profession as a “lie.”

No models show that everyone gains from trade. Standard models show that some groups are benefitted by trade and others are hurt. The usual story is that the winners gain more than the losers lose.

This means in principle that the winners can compensate the losers so that everyone is better off. In the real world, this compensation never takes place, so when we talk about trade we’re talking about a policy that redistributes from some groups to others.

Our trade policy over the last four decades has been quite explicitly designed to redistribute income upward. This was the point of deals like NAFTA, or admitting China to the WTO.

These deals were about putting US manufacturing workers in direct competition with much-lower-paid workers in the developing world. The expected and actual effect of these policies is to reduce employment in manufacturing. This also put downward pressure on the wages of the manufacturing workers who kept their jobs, as well as on the wages of less-educated workers more generally, since manufacturing has historically been a source of relatively high-paying employment for workers without college degrees.

This is not a story of free trade. Our trade deals did little or nothing to make it easier for highly educated professionals to work in the United States. As a result, our doctors earn on average roughly twice as much as doctors in other wealthy countries, even as our manufacturing workers earn considerably less than their counterparts in Germany and several other countries.

In the last decade, China began running huge trade surpluses with the United States in large part because it deliberately held down the value of its currency. This has the effect of making China’s exports more competitive in the world economy.

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But contrary to Trumpian rhetoric, the resulting trade deficit doesn’t mean China wins and the United States as a whole loses. Companies like GE that have manufacturing facilities in China are very happy to have China keep down its production costs.

The same is true of big retailers like Walmart that are able to undercut competition with their low-cost supply chains in China. Higher-paid professionals who are largely protected from foreign competition also benefit, since they get access to cheaper imports without having to lose anything on the wage side.

Trump could have tried to at least partially reverse the upward redistribution from the US trade deficit if he had followed through on his campaign promise to put China’s currency management (he calls it “manipulation”) front and center in his trade policy. Instead, currency management appears nowhere in his vague and ever shifting complaints against China. Perhaps the beneficiaries from the overvalued dollar put enough pressure on Trump to drop one of his main campaign issues.

Instead, we have been treated with endless stories from news outlets where commentators express concern that Trump may not be sufficiently focused on the question of China “stealing” technology from US corporations. This is again where it is essential to remember it is class, not country, that matters here.

If Chinese corporations use technology developed by Boeing, Microsoft, or other US giants, this is bad news for their stockholders, but it doesn’t directly harm the rest of us. In fact, if the Chinese corporations can then produce the same products at a lower price and then export them to the United States, this would be a gain for non-stockholders. This is the classic argument for free trade.

In fact, if China has to pay less money to companies for patents and copyrights, it will have more money to buy other goods and services from the United States. Supposedly, economists are worried about inequality in the United States. If China doesn’t honor our patents and copyrights, it will be a step toward addressing this problem.

The long and short is that when Trump or anyone else tries to argue about the US interest in a particular trade policy, we’d better look more closely. They are trying to conceal who is really winning, and losing.

Chlorine Washing of Food Doesn’t Remove Contaminants, Study Finds, Igniting Safety Concerns in American Poultry Exported Abroad

Another reason to eat less or no meat — chlorine-washed food can actually cross-contaminate a kitchen.

The chlorine washing of food, the controversial “cleaning” technique used by many US poultry producers who want access to the British market post-Brexit, does not remove contaminants, a new study has found.

The investigation, by a team of microbiologists from Southampton University and published in the US journal mBio, found that bacilli such as listeria and salmonella remain completely active after chlorine washing. The process merely makes it impossible to culture them in the lab, giving the false impression that the chlorine washing has been effective.

Apart from a few voluntary codes, the American poultry industry is unregulated compared with that in the EU, allowing for flocks to be kept in far greater densities and leading to a much higher incidence of infection. While chicken farmers in the EU manage contamination through higher welfare standards, smaller flock densities and inoculation, chlorine washing is routinely used in the US right at the end of the process, after slaughter, to clean carcasses. This latest study indicates it simply doesn’t work.

Currently, chlorine-washed chicken is barred from entry to the EU on animal welfare grounds and has become a contentious issue for opponents of liberal trade deals with the US post-Brexit.

Previous studies with similar findings have been dismissed by the US poultry industry as producing “laboratory-only” results with no relevance to the real world. “We therefore tested the strains of listeria and salmonella that we had chlorine-washed on nematodes [roundworms], which have a relatively complex digestive system,” said Professor William Keevil, who led the university team. “All of them died. Many companies and scientists have built their reputations promoting anti-microbial products. This research questions everything they’ve done.”

The study tested contaminated spinach, but Keevil insists the findings apply equally to chicken. “This is very concerning,” he said. The issue, he argues, is less to do with the chicken itself, the contamination of which can be managed by thorough cooking. “It’s that chlorine-washed chicken, giving the impression of being safe, can then cross-contaminate the kitchen.”

Danger of ISDS in Trans-Pacific Partnership Countries

The Investor-State Dispute Settlement is an absurd mechanism that undermines a country’s legal sovereignty. Additionally, it should be noted that the TPP isn’t a free trade agreement — it’s an investor rights agreement. Increased protectionism for pharmaceutical corporations in the form of stronger patent enforcement is a notably prominent example that’s the opposite of free trade.

Thanks to years of organizing, we in the United States saved ourselves from the corporate-dominated Trans-Pacific Partnership (TPP) by ensuring that the controversial deal was universally reviled across party lines and could never gain a majority in Congress.

But it is deeply unfortunate for our international partners that this week the remaining 11 TPP countries — including Canada and Mexico — agreed to move forward the deeply flawed TPP model for their countries in a cynically renamed “Comprehensive and Progressive Trans-Pacific Partnership.” We know from our years-long, internationally-coordinated TPP campaign that our sisters and brothers in those nations fought against the corporate-rigged TPP model as hard as we did. We stand in solidarity with them as they continue to mobilize to block the implementation of any newly agreed TPP deal in their countries.

While some of the most egregious provisions pushed by Big Pharma that would have further threatened access to life-saving medicines were fortunately set aside (for now) in the revised TPP-11 deal, most of the TPP’s dangerous rules remain intact. It is shocking, for instance, that Canada, Mexico and others apparently agreed to maintain the infamous investor-state dispute settlement (ISDS) system (with only some minor tweaks), that empowers multinational corporations to attack public interest laws before panels of three corporate lawyers.

We dodged a bullet here in the United States — the TPP would have doubled U.S. exposure to investor-state attacks against U.S. policies by newly empowering more than 1,000 additional corporations in TPP countries, which own more than 9,200 additional subsidiaries in the United States, to launch investor-state cases against the U.S. government.

But, it is beyond perplexing that Canada and Mexico would agree to expand their liability to these ISDS attacks on their laws in the TPP-11. In the North America Free Trade Agreement (NAFTA) renegotiations, the United States has proposed to radically roll back ISDS, which should be good news for Canada and Mexico, since Canadian and Mexican taxpayers have paid $392 million to mostly U.S. corporations who won ISDS attacks against their public interest laws using NAFTA.

The corporate lobby, which has been doing all it can to block the positive NAFTA proposal to roll back ISDS, is undoubtedly rejoicing that the TPP-11 countries have signaled their willingness to accept expansion of the controversial ISDS system.

But the diverse consensus to end ISDS in NAFTA and elsewhere spans the political spectrum, with stark criticism coming from voices as disparate as U.S. Supreme Court Chief Justice John RobertsReagan-era associate deputy attorney general Bruce Fein, the pro-free-trade libertarian Cato Institute think tank, U.S. Senator Elizabeth Warren (D-Mass.)Nobel laureate economist Joseph Stiglitzunions and environmental groups.

China May Lessen Its Currency Manipulation Soon

The Chinese currency management done over the past several years is a significant issue because it raises the U.S. trade deficit, and a higher U.S. trade deficit — as seen in recent years — means a contribution to a shortfall in U.S. economic demand. A considerable shortfall in economic demand has hurt the majority of U.S. workers, as it means the U.S. is importing too much and exporting too little. This policy actually matters quite a bit, as its macroeconomic implications effect the voting trends in the U.S. that then have an effect on world affairs.

A NYT article told readers that investors are worried because China may stop buying and could even start selling US Treasury bonds:

“Bond markets appeared to be further spooked on Wednesday by a report that China’s central bank, which owns $1.2 trillion in United States Treasury bonds, may be poised to slow or even halt its buying of United States debt. China has total reserves of just over $3 trillion.”

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While China’s decision to stop buying, and possibly start selling US Treasury bonds, is presented as a bad thing in this piece, it is exactly what anyone who had complained about China’s currency “manipulation” (e.g. Donald Trump) would want to see. This “manipulation” (which should more accurately be called “management” since it is entirely open) involved China’s government buying US government bonds and other assets in order to prop up the dollar against the yuan.

By buying dollar-based assets, instead of selling its dollars in international currency markets, China was increasing the demand for dollars, thereby pushing up its price. If it stops and reverses this process, it will be lowering the value of the dollar relative to the yuan. This will make goods and services in the United States more competitive internationally, thereby reducing the US trade deficit.

Rather than being a hostile gesture toward the United States, this is exactly what Trump claimed he was going to make China do in his campaign. He said that he would a take a tough line with China and make it end its currency management.

It is also worth noting that if the dollar declines in the months ahead it would be the exact opposite of what most economists (including the Trump administration’s economists) had predicted as the outcome from the tax cut. They had predicted a flood of foreign investment, which would have the effect of increasing the value of the dollar and the trade deficit.

Saving $1.5 Trillion Annually on Healthcare

Bringing the per capita costs of U.S. healthcare in line with other wealthy countries would save over a trillion dollars a year.

Austin Frakt and Aaron Carroll had an interesting Upshot piece in the NYT on why the U.S. spends twice as much per person as other wealthy countries for its health care. The piece cites research pointing out that people in the United States do not use more health care services than people in other countries. The reason that we pay more for health care is that actors in the industry, such as doctors, drug companies, insurers, and medical equipment manufacturers, get more money than their counterparts elsewhere.

The piece concludes by noting a couple of mechanisms for containing costs, but then argues:

“If attempted nationally, or even in a state, either of these would be met with resistance from all those who directly benefit from high prices, including physicians, hospitals, pharmaceutical companies — and pretty much every other provider of health care in the United States.

“Higher prices aren’t all bad for consumers. They probably lead to some increased innovation, which confers benefits to patients globally. Though it’s reasonable to push back on high health care prices, there may be a limit to how far we should.”

It’s striking to see economists reluctant to use mechanisms that would bring payments in the health care in line with payments in the rest of the world because they “would be met with resistance from all those who directly benefit from high prices.”

Efforts to reduce trade barriers that had the effect of destroying jobs and cutting pay for autoworkers, textile workers, and other manufacturing workers were also met with resistance. Economists not only supported these efforts, they treated them as an almost holy cause. They insisted on “free trade,” as the ultimate good.

For some reason, Frakt and Carroll believe that comparable efforts (we can also use trade in the health care sector to reduce costs) to reduce excess payments in the health care sector are a bad idea because the people who would see their pay and income reduced will be unhappy. In this context, it is probably worth mentioning that there is hugely more money at stake in bringing our health care costs in line with the rest of the world than with reducing trade barriers with items like steel and cars. The latter can save us at most a few tens of billions a year. If we paid the same amount per person for health care as people in Canada or Germany, the savings would be more than $1.5 trillion annually, more than $4,000 per person per year.