The “America first” steamroller moves on, now rolling over the global free trade system.
There are indeed workers in the U.S. that have been left behind by globalization, and who are suffering economically even as aggregate growth continues. Shouldn’t U.S. policy makers act to provide support for these workers?
Indeed, they should. In fact, the weakness of past efforts to do so – such as through the cumbersome and limited Trade Adjustment Assistance Program, help explain the current populism.
What’s wrong, then, with striking back at countries with whom the U.S. runs large trade deficits, to create fairer trade and bring back or at least save jobs?
First, a focus on bilateral trade deficits is completely misguided. The U.S. runs bilateral deficits in goods trade with Cambodia, Kenya and Algeria (among many others). Is the U.S. “losing” to these countries? Is the U.S. economy harmed by the footwear imported from Cambodia? By the apparel and coffee entering the U.S. market from Kenya? By crude oil imported from Algeria? Or do consumers benefit from these goods, and are oil refiners able to profit from crude oil imports, just as other manufacturers profit from imports of intermediate goods to which they add value?
The U.S. of course runs much larger trade deficits with China and with Germany. More on this below.
Second, as is widely established, job losses in manufacturing have several sources; most studies attribute the largest share of manufacturing job losses to technological change. Protectionism will therefore do nothing to bring jobs back.
Third, protectionist measures enacted by the current administration have been undertaken unilaterally. This renders the U.S. hostile to the multilateral rules-based international system it was instrumental in setting up, and from which it has benefited disproportionately (if anything, the rules have been tilted heavily in favor of U.S. interests to the detriment of developing economies).
Fourth, there will undoubtedly be retaliation for U.S. protectionism. This brings us to China. Scholars of U.S.-China economic relations point out that the bilateral trade deficit between the U.S. and China is misleading.
As Yukon Huang of the Carnegie Endowment points out, with global supply chains so integrated, Chinese producers import semi-finished products from elsewhere in Asia and add a small of amount of value before exporting the finished product to the U.S. The entire value of the product shows up as an export to the U.S., amplifying the size of the U.S. trade deficit with China.
China’s violation of intellectual property rights and insistence that technology transfer accompany foreign investment is a genuine problem. However, knowledgeable accounts indicate that the matter is best addressed through engaging China, whose record in these areas is improving as its economy develops. Efforts to negotiate a bilateral investment treaty, for example, would be valuable to the U.S. economy. But such an endeavor would require diplomacy – as well as patience and resistance to populist instincts, two qualities absent at present from U.S. foreign economic policy.
Just as the noisy embrace of protectionism is a product of domestic politics in the U.S., pressures already are building for China’s government to enact strong retaliatory measures.
China’s retaliation will be targeted on such products as soybeans and aircraft, U.S. products for which China is the largest market. There will be concentrated economic pain in the U.S. Furthermore, as economists such as Mary Lovely of Syracuse University point out, the exchange of protectionist measures will have little net effect on the U.S. trade deficit with China.
One of many problems with “America first” is that America is not alone in the world.
So, returning to the workers who’ve been displaced by economic change, is there a better way to respond? This brings us to the case of Germany – and back then to the U.S. The U.S. runs a large trade deficit with Germany, too. Yet one overlooked German export to the U.S. is its apprenticeship system.
Apprenticeships are integrated into the German economy across economic sectors, with about one half million young Germans entering the apprenticeship system annually. One reflection of the success of the apprenticeship system is the extent to which quality manufacturing continues to thrive in Germany.
The system is a public-private partnership with small, medium and large enterprises offering apprenticeship slots and publicly-funded vocational schools offering formal training to accompany training in the workplace. Employers create standard training requirements for each sector.
While firms see the value in investing in workers, the German government embraces the collective gains that accrue from having a highly skilled and productive workforce.
Some German firms have set up apprenticeships in their U.S. locations with Siemens, for example, establishing apprenticeships at locations in North Carolina, Alabama, California and Georgia; BMW setting up an apprenticeship program at its plant in Spartanburg, South Carolina in which it provides paid part-time positions with workplace training and fully paid study toward an associate’s degree and the promise of a job at the end of the program; and the Georgia Technical College System entering into an apprenticeship partnership with the Bavarian Ministry of Education, Culture and Science.
The U.S. government could embrace the opportunity to encourage and expand such programs. The Obama Administration modestly expanded funding for apprenticeships in 2015 and 2016.
But do not expect public investment in American workers under the current administration. Such investments are an alternative to protectionism, but also to the angry populism and pursuit of political division that animate the current occupant of the White House.