Monday, December 05, 2016

Trump's Dangerous Economic Nationalsm

For Donald Trump and his most loyal followers, real objective facts do not matter.  Rather, for Trump, when not satiating his own ego, "facts" are whatever he needs to support his demagoguery. For his followers, "facts" are whatever allows them to blame others for their bad decisions - e.g., dropping out of high school or not pursing a college degree - and misfortunes.  The problem is, however, that objective reality and true facts  do not change to fit the needs of a demagogue or those who live detached from reality.  Nowhere is this more true than in economic and foreign trade policies.  Trump readily blames foreign trade and/or trade agreements for the decline of American jobs, but the true cause overall is something far different: automation and technological advances.  Plants that once needed thousand of workers can now operate - often at higher outputs - with a fraction of the number of workers. A column by an economist in the Washington Post looks at the dangerous falsehoods in Trump's economic nationalism.  Here are excerpts:
For starters, it vastly exaggerates the role of trade in destroying U.S. jobs. Of course, many American factories have shut, and their production has moved abroad (Mexico, China) or been replaced by the imports from foreign competitors. But these losses don’t explain the steep declines in manufacturing jobs, which dropped a third since 1990 (from almost 18 million to 12 million in 2015), even though factory output — of planes, earth-moving equipment, pharmaceuticals, computer chips — nearly doubled over the same years. Automation is the main cause. 
The often-overlooked truth is that the U.S. economy, despite much rhetoric to the contrary, is less globalized than virtually all other advanced countries. We produce most of what we consume. True, we imported nearly $2.8 trillion of goods and services last year, but we also exported almost $2.3 trillion. As a share of the $18 trillion economy, the deficit was less than 3 percent and about half its 2006 level. 
The danger of economic nationalism is that it deludes us into thinking that our problems mainly originate abroad and can be fixed by “tougher” trade policies. Not so. It’s worth recalling that the two largest economic setbacks since World War II were both domestic in origin: the high inflation of the late ‘70s, peaking at more than 13 percent (caused by easy money); and the 2008-2009 financial crisis (caused by reckless financial speculation). 
Although the United States should pursue its economic interests, it’s doubtful that trade concessions will cure chronic trade deficits. These mainly reflect the dollar’s role as the major international money for trade and international investment. Demand for dollars by foreigners raises the currency’s value, putting U.S. producers at a competitive disadvantage in global markets. This is unfair to American factories and farms, but the alternative — ruining the dollar through high inflation or exchange controls — would be worse.
Trade remains foreign policy. It’s true that today’s circumstances are very different from those after World War II. But the basic reality endures: Who we trade with and how are expressions of national purpose and power. Trump is wrong to reject the Trans-Pacific Partnership, which would encourage trade between the United States and other Pacific-rim countries, creating an alternative to a China-dominated system. 
Trump’s economic nationalism . . . . Down that path lie protectionism, isolationism, more trade conflicts and threatened economic growth. It would redefine America’s relationship with the world. 

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