The case for fair trade, Trump-style

Second in a two-part series

By UYLESS BLACK

Special to The Press

The first article in this series makes the claim that President Trump’s skepticism of America’s international trade agreements is well founded. I agree and I also admit that I was a late comer to this notion.

For example, I thought that NAFTA (the North American Free Trade Agreement) would stem the flow of illegal Mexican immigrants into the United States. That did not happen. As well, I assumed the net balance between the two countries’ flow of goods would even out. After all, why enter into a trade agreement if it is not beneficial to one’s own economy? That did not happen either.

Another pertinent point was my ill-founded belief that America’s international trade agreements would be monitored and mentored by the World Trade Organization (WTO), to which the United States is a member. Again, I was wrong.

To see why, consider that 77 percent of America’s trade deficits occur with nations that also operate under the WTO’s rules. Second, consider this quote from The Economist, a journal that has been disposed to favor trade agreements for decades:

“America’s tariff commitments under the WTO are indeed lower than other countries’. In 2015 America applied for an average tariff of 3.5 percent, compared with 4.0 percent for Japan, 5.1 percent for the EU and 9.9 percent for China. ...That sort of thing is hard to square with Mr. Trump’s vision of reciprocity.”

The proponents of WTO state that WTO’s arrangements result in the boosting of trade flows between 50 and 100 percent. Fine, but to whom do these trade flow benefits accrue? Certainly not to the unemployed former factory worker in Detroit.

Where Does the Blame Lie?

The United States is at fault for allowing the trade imbalances that have contributed to the decline of its manufacturing base. It is reasonable to assume that America did this with admirable intent: To raise the quality of living of the citizens of other nations.

These arrangements have also been to the benefit of selected commercial segments of our nation. For example, higher tariffs against certain goods coming into America that could damage an American industry. Overall, we alone are both the villains and heroes in this play.

To cite examples, consider our penchant for almost insisting that our youth pursue a four-year college degree. It is known that people with a conventional college degree make much more money in their lifetime than those who do not have this level of education.

So, what’s the beef? The beef is that many jobs do not require a four year college degree in such fields as interior decorating, clothing design, and baking pastries. Those specialities are best left to trade schools or other less expensive forms of training. (Besides, one could question if such soft subjects should even be in the curriculum of academic institutions, but my bias is showing.)

I am not denigrating higher-level education. I am one of its products. I am lamenting America’s forsaking other forms of education. For example, see the figure in this article.

The figure shows manufacturing employment as a percent of total civilian employment in several countries. All are declining, the subject for another article (increased automation, as one example). The point is that Germany has kept intact its manufacturing base and its associated trade schools. Thus, it does not rely — as much as America does — on getting widgets from China. It makes its own widgets.

This figure reflects some of the thoughts behind Mr. Trump’s Tweets about international trade agreements: recovering our manufacturing infrastructure.

In the End, It’s the End

Mr. Trump’s initiatives regarding trade agreements are laudable. But this idea should be kept in mind: In the end, the issue of trade — based on manual manufacturing dominance — will be rendered moot because of four interrelated factors (I emphasize interrelated):

(1) The increased use of artificial intelligence in the workplace will delegate more power to computers and less to workers. (2) The continued increase of worker wages in other countries will eliminate what is now cheaply made “toasters.” (3) The increased capabilities of 3-D printing will further reduce the need for manual labor. (4) The expanding capacity of internet and wireless-based capabilities will continue to erode the efficacy of manual cross-border trade transactions.

In the meantime, America can benefit from international trade agreements, but only if they are balanced for all parties. As the Donald might say, “Let’s make a deal!” But only if it is fair.

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During part of his career, Uyless Black served as a senior officer at the Federal Reserve Board in Washington, DC and the Senior Vice President of the Federal Reserve Bank in Dallas. Later, he founded three companies dealing with computer networks and the emerging internet. Mr. Black resides in Hayden.