Most shoppers prefer to buy American. But given a choice between an American-made product and a cheaper import from China, Mexico, or another low wage country, they’ll go for the bargain. That’s one reason millions of American factory workers have lost their jobs.
In last year’s presidential election, Donald Trump put the collapse of American manufacturing center stage. He pledged to take on China — our biggest trade rival — and to rip up NAFTA — the North American Free Trade Agreement with Mexico and Canada. He told rallies in Indiana and Pennsylvania “we cannot continue to allow China to rape our country” and “there are no jobs because China has our jobs.” He warned upstate New Yorkers they were being “horribly, horribly hurt by NAFTA.”
Just campaign rhetoric? Absolutely not. Last week President Trump launched an investigation into China’s trade practices. This Wednesday, the Trump administration begins renegotiating NAFTA.
The departure of White House strategist Steve Bannon last week was predicted to end what the media disparagingly call “economic nationalism.” Don’t’ believe it. Trump himself railed for years against unfair trade treaties. Commerce Secretary Wilbur Ross, and U.S. Trade Representative Robert Lighthizer share Trump’s long-held view. Lighthizer said on Friday that “NAFTA has fundamentally failed many, many Americans and needs major improvement.” He’s promising dramatic changes to NAFTA, not just “tweaks.”
Most economists claim global trade is good for America, because it keeps prices low, offers consumers more choices, and opens up overseas markets where U.S businesses and farms can sell their products. That’s been the rationale for free trade for two centuries, ever since Scottish philosopher Adam Smith famously argued that the global marketplace’s “invisible hand” would benefit all. It hasn’t worked out that smoothly. American manufacturing workers are getting the back of Smith’s invisible hand.
President Clinton’s adoption of NAFTA and the massive influx of Chinese goods after China was admitted to the World Trade Organization in 2001 clobbered American workers, causing over 2 million layoffs in less than two decades, according to MIT economist David Autor. New York State alone lost 34,000 jobs due to NAFTA. Politicians who boasted about these deals kept mum about catastrophes ahead for workers.
Chinese imports forced furniture factories in Hickory, North Carolina to close, putting that community into an economic tailspin. More than three-quarters of the furniture sold in the U.S. now is made in China
Of course, factory layoffs are only partly caused by trade. Automation is allowing manufacturers to produce more products with fewer workers. Yet it’s almost impossible to buy furniture, or a smart phone, laptop computer, Christmas ornaments, furniture or clothes made in America.
Apple is the biggest American corporation, based on stock value. But forget American-made. Parts for its smartphones come from all over Asia, and the phones are assembled by Taiwanese companies.
Wall Street investors tremble about a trade war that would hurt S&P 500 companies like Apple and General Motors, which sells more vehicles in China than in the U.S. But auto workers, including many Trump voters, are pushing for American-made batteries and more American steel in cars, even though it will push up the sticker price, making Detroit less competitive.
That is Trump’s trade conundrum. Trade barriers that benefit one interest hurt another.
Past politicians haven’t leveled with the public about trade. President Bill Clinton bragged letting China into the WTO would “have a profound impact on human rights and political liberty.” Nonsense. China has become more repressive. China is stealing intellectual property, and even worse, plotting to control the supply of semi-conductors, electronic elements needed for weapons and other defense equipment. That puts America in peril.
Trump dared to question the gospel of free trade and changed the national discussion. Over three quarters of Trump voters, including lifelong Democrats, believed the pacts were hurting America, and they’ve given Trump a mandate to act. Expect major trade law changes, driven by these voters and by the need to thwart Chinese aggression.