Fear trumps free trade in US fortress of solitude

Paul McGeough

Donald Trump is going to fix ’em right up. Apple? Make your damned cell phones in the US.

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Trump: Campaign ‘never been so well united’

“Right now it’s the best in terms of being united than it’s been since we began” says Donald Trump at a Florida event.

Detroit motor-makers? Pull your car plants back from abroad, or eat a fat tax on every vehicle you import.

And Carrier Corp, which reckons it’ll save a bomb closing plants in Indiana to make air-conditioners south of the border? Donald Trump is stitching them right up – “I’m going to tell the head of Carrier: ‘I hope you enjoy your stay in Mexico, folks. But every single unit you send back across our border … you’re gonna pay a 35 per cent tax.'”

No deal: Protesters in Atlanta, Georgia, express opposition to the Trans-Pacific Partnership. No deal: Protesters in Atlanta, Georgia, express opposition to the Trans-Pacific Partnership. 

The theatre of American politics is truly absurd. Trump’s offences are legion – crass, buffoonish, misogynist, racist, bigoted, a liar … not to mention inarticulate.

But here’s the sin for which America’s crony capitalists will never forgive the GOP presidential candidate – the billionaire Trump has the hutzpah to step outside their gilded tent, to turn around and to piss back into it.

Americans have been told for years, but never quite heard – that an incestuous, moneyed elite does conspire to rig the system, buying politicians and screwing workers.

Cases in point – the health insurance market is rigged against them, state by state; they pay a huge impost on pharmaceuticals, because of a sweetheart deal between Washington and Big Pharma; and, Internet providers, airlines and banks get to charge like bandits, because Washington turns a blind eye to market manipulation and price fixing.

Prime Minister Malcolm Turnbull (left) encourages US politicians to support the Trans-Pacific Partnership Agreement. Prime Minister Malcolm Turnbull (left) encourages US politicians to support the Trans-Pacific Partnership Agreement. Photo: Andrew Harrer

And insult of insults, the latest big trade deal, known as the TPP, is written to protect the intellectual property and foreign assets of the big corporate robber barons, but very little is done to safeguard the jobs and wages of little guys who get the flick, in the face of foreign competition.

So what gives after the November elections?

Trade delegates signed the TPPA in Auckland in February. Trade delegates signed the TPPA in Auckland in February. Photo: David Rowland

Making trade sexy again

It’s a long time since trade has been politically sexy, but this go-round it’s as sexy as all get out. Trump is committed to a trade war with China and others who refuse to bend to his protectionist will. And caught in the jaws of policy pincers shaped by Trump and Bernie Sanders, her now-defeated challenger in the primaries, Democrat nominee Hillary Clinton is up on the ramparts with Trump, to the point of now rejecting trade deals that have her name all over them.

Existing pacts, such as NAFTA with Mexico and Canada, are on the nose. And the TPP, between a dozen countries – including Australia but excluding China, won enthusiastic endorsements from Clinton up till she felt the squeeze of that Trump-Sanders pincers.

China has resorted to ever-looser fiscal and monetary policy to support growth and jobs. China has resorted to ever-looser fiscal and monetary policy to support growth and jobs. Photo: Reuters

Now, the TPP is likely to be rejected if and when it goes to Congress later this year. Once a Clinton “gold standard”, the deal suddenly fails to clear her “high bar” for acceptance.

But wait. For all the Trump and Clinton posturing as white knights and the demon light in which the corporate establishment is cast, the trade debate is more complex than can be told in campaign sound bites.

A slowing domestic economy is cutting profits among Chinese businesses. A slowing domestic economy is cutting profits among Chinese businesses.  Photo: Qilai Shen

In narrowly equating trade deals with job losses, there is virtually no discussion of automation as a job killer or of the inevitable across-the-board price hikes for consumers that are trade protection’s partner in crime. Abandoned factories and distraught workers make good television and arouse passion; and a challenging debate on how best to provide for displaced workers, or the social and economic restructuring that are inevitable in a modernising and globalised world, is too wonky. It can’t compete.

The reality here is that Americans are having the wrong debate – of which more, later.

Corn producers would likely suffer from a trade war with China. Corn producers would likely suffer from a trade war with China. Photo: New York Times

In trying to shed light on how this thing plays out, it helps to look forward, and backwards from the uncertain crossroads at which Americans find themselves.

Start with the China-made symbol of American ingenuity, the iPhone, and Trump’s unambiguous declaration – “I’m going to bring jobs back. I’m going to get Apple to start making their computers and their iPhones on our land, not in China.”

Democratic presidential nominee Hillary Clinton during a campaign event in Detroit, Michigan. Democratic presidential nominee Hillary Clinton during a campaign event in Detroit, Michigan. Photo: Bloomberg

What would that do to the price of an iPhone?

By a tech analyst’s back-of-an-envelope calculation reported in Motherboard magazine, it adds $US50 to the price of a US-made phone.

Republican presidential nominee Donald Trump has run his campaign on promises of bringing jobs to the US. Republican presidential nominee Donald Trump has run his campaign on promises of bringing jobs to the US. Photo: Bloomberg

More detailed work by Technology Review magazine, founded at Massachusetts Institute of Technology, estimates a $US30 to $US40 impost if Apple assembled the phone in the US, from parts manufactured offshore. But if by “making”, Trump means parts being manufactured and the device assembled in the US, the magazine adds “at most $US100” to the price.

Maybe $US30 to $US100 on the price of an iPhone that sell for up to $US750 is a fair consumer contribution to job-creation. But recent US history with tariffs to protect jobs in the tyre-making business, serves as a sobering glance backwards – and perhaps as a window into a future under Trump or Clinton, depending on the extent to which she gets boxed in as a protectionist by her own campaign rhetoric.

Clinton: Trump ‘unqualified to be president’

Her Republican rival Donald Trump is “unqualified to be president, and unfit to be commander-in-chief” says Democratic presidential candidate Hillary Clinton.

In 2009, American trade unions jacked up as a flood of 50 million Chinese-made tyres engulfed the US in just one year. President Barack Obama responded, whacking a tariff, in the vein of Trump’s proposed tax on Mexican-made air-conditioners, of 35 per cent on Chinese tyres for three years, to force Beijing to “play by the rules” of the day.

Good man Obama? He might have been well intentioned, but the outcome was ordinary to the point of being ineffectual – jobs saved or created were minimal, prices went up and other foreign producers won a competitive advantage over Chinese and US producers.

As crunched by Gary Clyde Hufbauer and Sean Lowry, economists at the Petersen Institute for International Economics, this is how the numbers panned out in the three years in which the tyre tariff applied: an industry then employing 50,800 workers added another 1200 jobs, a notional wage gain of $US48 million; but consumers paid an extra $US1.1 billion for tyres, which amounted to $US900 000 for each new job.

That’s not all. American poultry breeders had recently established a lucrative niche market in China for chicken feet, previously considered waste or a pet-food ingredient. Chicken feet have little culinary appeal in the US but are popular as snacks in China. Retaliating against the Obama tyre tariff, Beijing slapped tariffs of up to 105 per cent on American chicken feet, slashing a windfall export opportunity by 90 per cent, at a cost of about $US1 billion to poultry producers in the US.

In gunning for imports to the US from China, Trump has said little about the risk of Beijing retaliating against US exports to China, America’s No.3 export market. But if the chicken-feet revenge is a guide, than US producers of soybeans, aircraft, cotton, copper, corn and recycled materials most likely would get caught in the crossfire.

Ignoring the experts

Trump’s apocalyptic rhetoric on the domestic impact of trade is heard loudly. But there’s little media traction for near unanimity among economists on the economy-wide benefits of global trade deals, of net gains under pacts such as NAFTA and the TPP, and of the very dangerous downside in Trump wanting to go to the mattresses over trade.

That disconnect makes trade a potential Brexit factor for the US – just as British rabble-rousers demeaned experts as smart alec know-it-alls, at the same time as they ratcheted up ill-informed but combustible popular anger, so goes the US election campaign, with most who speak in defence of the trade deals being ignored; or howled down as puppets of a self-serving status quo.

Modelling by Moody’s Analytics, commissioned by The Washington Post, estimates that Trump’s proposed tariff regime would push the US into recession and throw millions out of work. Less ominously, work by the Roosevelt Institute predicts a 1 per cent fall-off in gross domestic product – i.e., no growth from the man who says he’ll turbo-charge the economy.

Economists point to net benefits from trade agreements – lower prices for imported goods amount to an effective 29 per cent kick-along in household purchasing power; the 500 biggest American companies earn about half of their revenue internationally; access to foreign markets has added $US1300 to average workers’ pay in each of the past 20 years.

Since the US signed NAFTA in 1993, clothing costs have fallen back to 1986 levels and furniture is the cheapest it’s been since the early 1980s. The much-maligned trade with China is estimated to have put an extra $US250 a year in every American’s pocket since 2008.

Fordham University economics professor Shushanik Hakobyan rates NAFTA a net gain, after early, anticipated job losses. And economists generally conclude that the TPP will have no significant jobs implications in the US – and might also serve strategically to limit Chinese power and trade influence ahead of an anticipated, late bid for membership by Beijing.

Similarly, a proposed Transatlantic Trade and Investment Partnership with Europe is tipped to raise American GDP by as much as 3 per cent; and moves to regulate the global flow of data are forecast to deliver a big dividend to the US, given its status as a global technology hub.

Stepping back from her long-term support for such deals, Clinton became defiant early in the primaries – “[as president, I’ll] stop, dead in its tracks, any trade deal that hurts America and American workers … So that’s why we have to oppose the TPP.”

Trump rejects TPP as “a horrible deal”. On the hustings, he said: “It’s a deal that was designed for China to come in as they always do, through the back door, and totally take advantage of everyone.”

A ‘confused mess’

MIT labour economist David Autor faults the campaign rhetoric as a “confused mess”, but argues that protectionist politicians miss the point. “I think what they are correctly responding to is the reality that the last 35 years have been bad ones for blue-collar Americans.”

By Autor’s calculations, trade with China has killed 2 million American jobs in 20 years and wages have stagnated. But trade is not the only job-killer – computers and technology have ramped up productivity, killing many jobs.

But Trump, and to a lesser extent Clinton, is raising false hopes among the displaced millions in claiming that he’ll bring jobs back to the US as he rails against NAFTA and TPP. And he’s misleading when he says he’ll “immediately start renegotiating” America’s trade deal with China – there is no deal with China, just the global framework set by the World Trade Organisation, under which the tyres-for-chicken-feet squabble played out.

This is where we get back to Americans having the wrong debate.

Autor’s point is there is no point in bashing trade deals that are an inevitable part of a globalised world that is not going back to the 1960s – it’s a fait accompli. But there does need to be a more determined focus by the US on genuinely helping sacked workers, a field in which US performance is abysmal compared with other developed economies.

Other economists predict that the TPP will boost American incomes by $131 billion, or 0.5 per cent of GDP, more than 100 times what America spent on trade-adjustment assistance in 2009 and enough for government and others to adequately compensate losers under the deal. It should come as no surprise that a country that has great difficulty embracing something as beneficial as a national health scheme might be similarly disposed to any scheme that has the appearance of government handouts for people who are not working.

An assistance deal offered with NAFTA was deemed to be woefully inadequate. And arguing that opposition to trade deals will get stronger without better unemployment insurance, job training, and direct subsidies in a more realistic social safety net, Dartmouth economist and former George W Bush administration adviser Matthew Slaughter, says that the benefits of trade must be shared more equitably.

‘Missed an opportunity’

“I think we’ve missed an opportunity in the United States for many years, to have a discussion about our social safety net [because] in some basic sense, the narrative for why trade and globalisation are good is lost right now,” he says. “So what happens come January, 2017?”

These are structural changes around which many Americans can’t wrap their heads.

There’s a record of inadequate responses that supports an underlying belief that they’ll never happen, hence a knee-jerk resort to protectionism – circle the wagons, instead of refitting or retooling them.

Economies can reinvent themselves. Look at China, where a billion-strong peasant society has been transformed into a cheap-labour manufacturing superpower.

That’s what Apple CEO Tim Cook alluded to when he was challenged in a 60 Minutes interview, on bringing jobs home.

“China put an enormous focus on manufacturing … I mean, you can take every tool and die maker in the United States and probably put them in a room that we’re currently sitting in. In China, you would have to have multiple football fields.”

In a separate interview, one of his colleagues was in awe of what he described as the breathtaking speed and flexibility of Chinese manufacturing: “No American plant that can match that.”

It doesn’t sound like the Apple jobs are coming home any time soon.

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