On Monday, yet another “elite” pundit tells us that moving our jobs and factories and manufacturing ecosystem out of the country is good for us. This time it is Neil Irwin writing at the New York Times’ Upshot, “The Trade Deficit Isn’t a Scorecard, and Cutting It Won’t Make America Great Again.”
The U.S. has had trade deficits every year since the late 1970s, when Wall Street started advertising that “free trade” – moving jobs and factories out of the country — is good for us. Last year we had a goods and services trade deficit of $531 billion, $365 billion of that with China. But services ran a surplus, and if you only measure things we make, the goods deficit was $758.9 billion. On top of that the manufacturingtrade deficit was $831.4 billion, a 13.2 percent increase from 2014.
Imagine our economy if our manufacturers received $831.4 billion in new orders for things they make here. Imagine all the new factories opening, the hiring, the job-training centers, the suppliers booming, the stores near the factories booming, theirsuppliers booming, the taxes paid, and so on. Imagine the raises as employers competed for the workers they would need.
Again, we have had trade deficits every single yearsince the late 1970s, when “free trade” ideology was successfully sold to us. We move jobs and factories and manufacturing ecosystems (the expertise, suppliers, tools) out of the country to places where workers and the environment are exploited – because we were talked into letting that happen so that a few people could pocket the differential.
How were we bamboozled into letting that happen? The Irwin column is one more example.
Trade Deficits Are Good For Us?
…eliminating the trade deficit would not, on its own, make America great again, as Mr. Trump promises. And in isolation, the fact that the United States has a trade deficit does not prove that trade agreements are bad for Americans, a staple of Bernie Sanders’s campaign in the Democratic presidential primary. In fact, trying to eliminate the trade deficit could mean giving up some of the key levers of power that allow the United States to get its way in international politics.
Getting rid of the trade deficit could very well make America less great.
The trade-off: Getting rid of the trade deficit might make Wall Street less great because “we” can’t get “our” way telling other countries what to do … But it would mean American employers would have to compete for workers, bidding wages and benefits up.
Irwin continues, explaining even harder how moving jobs out of the country is good for us. Using the example of a trade deficit. Irwin says when there is a trade deficit we get more “stuff” and all the other country gets is our money. Again, last year we bought $831.4 billion more manufactured goods than we sold. Irwin explains this is a free lunch, we got stuff, and the only thing those other countries got was the money to hire millions of people and to maintain and modernize their manufacturing ecosystems, their country’s infrastructure and education.
Irwin explains this is also good for us because China then comes here and buys U.S. companies. “So does a trade deficit mean fewer jobs? It depends on which force is more economically powerful: fewer jobs creating exports or investment dollars flowing into the country.”
Note: In the above, “investment dollars flowing into the country” means buying our companies, land, production capacity, our ability to make a living, out from under us.
Irwin further explains the advantage of our trade deficits as being the necessary result of the U.S. dollar’s position as the global reserve currency, and therefore the underpinning of global finance. This is a key part of the equation to get:
There’s no doubt that maintaining the global reserve currency creates costs for the United States, namely a less competitive export industry.
But it also creates a lot of advantages. Lower interest rates and higher stock prices are among them (though they have the downside of also feeding debt-driven booms and busts). Even more important is what the dollar’s prominence in global finance does for America’s place in the world.
Summary: the tradeoff is lower wages for American workers but higher stock prices and low interest rates for America’s investor class. Less for the 99 percent and more for the 1 percent. Less for Main Street, more for Wall Street.
This chart, “Manufacturing vs. Finance as % of U.S. GDP” is from “Why Should We Save American Manufacturing?” by Michele Nash-Hoff. It shows how that trade-off has affected our economy.
Manufacturers and therefore workers used to have more power in our economy. Then Wall Street ascended, and here we are.
There are, in fact, real advantages to the U.S. from our reserve currency status. Irwin explains,
It helps ensure that the United States can afford to finance wars, and it gives the government greater ability to fight recessions and panics. A country experiencing a banking panic will see money sent out of the country, causing its currency to fall and its interest rates to rise. All that limits a government’s options for fixing the problem. In 2008, when the United States experienced a near collapse of the banking system, the opposite happened.
But it’s not just economics. “A lot of the benefits of having the reserve currency are more on the foreign policy side than the economic,” said Jennifer M. Harris, a senior fellow at the Council on Foreign Relations and author of a coming book, “War by Other Means,” on the use of economic tools in foreign policy.
The centrality of the dollar to global finance gives the United States power on the global stage that no other country can match.
This is all for real and does bring positive results for all of us in various ways. But the power imbalances of Wall Street (capital) vs. Main Street (labor) have reached a point of excess where the power of our investor class has become so dominant over our working people that more and more Americans are struggling just to keep from falling behind – and failing. Ask an American voter if she or he would rather have some money for retirement, good schools, a good infrastructure and well-functioning public services, or a strong financial sector able to threaten countries with military force to get what they want. They’ll vote for retirement security, infrastructure and the rest every time. And they’re just about ready to, even if that promise comes in the form of Donald Trump.
This blog originally appeared at ourfuture.org on March 29, 2016. Reprinted with permission.
Dave Johnson has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.