Media, Pols, Economists Admit They Were Wrong

By JOEL D. JOSEPH

Twenty-five years ago, there was a widespread consensus that more trade was good for everyone. In 1993, the North American Free Trade Agreement, NAFTA, passed with Democratic and Republican support. In 1972, Richard Nixon opened the door to China trade with Democratic support. The overwhelming majority of the media supported more free trade and claimed that it was good for the American economy. Similiarly, most economists thought that more trade was a no-brainer, that it created jobs in the US and abroad. But they were all wrong.

In April the New York Times finally admitted that it made a grave mistake: “What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs.”

The Times noted a recent study by three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — that found that a prime economic assumption relied on by international economists was false. The false presumption was that economies quickly recover from trade shocks. For example, when Chinese furniture replaces American furniture, the US economy is supposed to adjust. In theory, a developed industrial country like the United States was supposed to adjust to import competition by moving workers into more advanced industries that could successfully compete in global markets. But this theory, like so many other economics theories, proved to be wrong. Dead wrong.

The economists examined the effects of increased US-China trade. The presumed adjustment, they concluded, never happened. Wages remain low and unemployment high in the most affected local job markets. Nationally, there was no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced the average earnings dramatically.

BERNIE SANDERS AND DONALD TRUMP. The angry working class was right from the start. Bernie Sanders was right all along. Donald Trump has cashed in on the anger of those voters who are distraught that American jobs have gone overseas and that they are getting paid less than they were twenty years ago.

Both Republican and Democratic politicians looked the other way when jobs went offshore. And that is why both mainstream Democrats and Republicans are under attack by the voting masses.

Hillary Clinton has had a recent epiphany: she now says the Trans Pacific Partnership should be turned down. Last year she said that it was the “Gold Standard” of trade agreements. It cannot be ignored that Bill Clinton ran against the North American Free Trade Agreement and then signed it into law.

OTHER FALSE ASSUMPTIONS. The economists’ finding that economies don’t adjust quickly to trade imbalances is only one of many false assumptions underlying free trade theories. Another is that currencies will adjust so that there will not be long-term trade imbalances. Economic theory holds that the US cannot have persistent trade imbalances. But reality shows that we have had massive trade imbalances for 25 years.

One reason for this is that many countries, including Japan and China, undervalue their currencies and keep them undervalued. Free trade without freely fluctuating currencies does not work.

WHAT IS TO BE DONE? We should not start a trade war. The world has become too interdependent for that. We can successfully renegotiate with our trading partners to adjust trading patterns. The US is the largest economy in the world and has the most leverage when it negotiates one-on-one with a country. Concerning NAFTA, the US should renegotiate the agreement with Mexico and Canada. It was never intended that Mexico would become the largest car manufacturer in North America, but it is headed in that direction.

China needs the US market more than we need their cheap products. Trade, by its very nature, is a two-way street. Our massive trade deficits with China have gone on for far too long. We can renegotiate with China to get better terms, require China to let the Yuan float, pressure China to clean up its coal-fired power plants, to stop dumping steel and other commodities, to stop stealing American intellectual property and, in general, to become a real trading partner.

Joel Joseph is chairman of the Made in the USA Foundation, Email joeldjoseph@ gmail.com. Phone 310 MADE-USA

From The Progressive Populist, May 15, 2016

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