“For the first time since the end of the Second World War, the future relationship of America to the world is not fully settled.”
– Henry Kissinger, in an interview with The Atlantic in its December issue.
Donald Trump is an avowed economic nationalist. He promises to put American interests “first” in fashioning trade policy and negotiations. If he fulfills these pledges — and the evidence so far suggests he will — he will redefine America’s global role in a fundamentally deceptive and destructive way.
There is a real issue here. It transcends Trump’s headline-grabbing success last week in pushing Carrier, a maker of air conditioners, to reverse its decision to move roughly a thousand jobs to Mexico. History matters. Ever since World War II, with some lapses, American leaders have embraced the notion that trade could foster prosperity and promote democratic societies.
Trade was not just about economics; it was also about geopolitics. Disillusioned with the isolationism that followed World War I, Americans turned internationalist after World War II. The emphasis on trade was not simply to bolster prosperity; it also aimed to bind nations together so they would compete commercially and not resort to war.
By and large, the strategy succeeded. Shielded by massive numbers of U.S. troops, Western Europe and Japan staged strong economic recoveries that bolstered their wobbly democracies. So what we got for championing open trade — aside from the usual benefits of more consumer choice and greater economic efficiency — was a more stable postwar world.
Fine, say critics. But this pro-trade foreign policy subordinated America’s economic interests — the well-being of its workers and companies — to fuzzier geopolitical goals. World War II ended seven decades ago. Surely a few decades of aiding our competitors was sufficient, especially when U.S. companies were so dominant during those years. Now the pro-trade bias hurts U.S. firms and produces chronic American trade deficits.
Without citing the history, Trump buys into this critique. His stump speeches regularly denounced imports as destroying American jobs and creating trade deficits. For these sins, he blamed inept U.S. trade negotiators who gave away too much in access to the U.S. market and received too little in return.
Could he be right? Stripped of rhetorical excesses, this narrative sounds reasonable enough. But there are gaping omissions.
For starters, it vastly exaggerates the role of trade in destroying U.S. jobs. Of course, many American factories have shut, and their production has moved abroad (Mexico, China) or been replaced by the imports from foreign competitors. But these losses don’t explain the steep declines in manufacturing jobs, which dropped a third since 1990 (from almost 18 million to 12 million in 2015), even though factory output — of planes, earth-moving equipment, pharmaceuticals, computer chips — nearly doubled over the same years. Automation is the main cause.
The often-overlooked truth is that the U.S. economy, despite much rhetoric to the contrary, is less globalized than virtually all other advanced countries. We produce most of what we consume. True, we imported nearly $2.8 trillion of goods and services last year, but we also exported almost $2.3 trillion. As a share of the $18 trillion economy, the deficit was less than 3 percent and about half its 2006 level.
The danger of economic nationalism is that it deludes us into thinking that our problems mainly originate abroad and can be fixed by “tougher” trade policies. Not so. It’s worth recalling that the two largest economic setbacks since World War II were both domestic in origin: the high inflation of the late ‘70s, peaking at more than 13 percent (caused by easy money); and the 2008-09 financial crisis (caused by reckless financial speculation).
Although the United States should pursue its economic interests, it’s doubtful that trade concessions will cure chronic trade deficits. These mainly reflect the dollar’s role as the major international money for trade and international investment. Demand for dollars by foreigners raises the currency’s value, putting U.S. producers at a competitive disadvantage in global markets. This is unfair to American factories and farms, but the alternative — ruining the dollar through high inflation or exchange controls — would be worse.
Trade remains foreign policy. It’s true that today’s circumstances are very different from those after World War II. But the basic reality endures: Who we trade with and how is an expression of national purpose and power. Trump is wrong to reject the Trans-Pacific Partnership, which would encourage trade between the United States and other Pacific-rim countries, creating an alternative to a China-dominated system.
Perhaps Trump’s economic nationalism is rhetorical bluff, intended to improve his bargaining position in negotiations. Or perhaps not. Down that path lies protectionism, isolationism, more trade conflicts and threatened economic growth. It would redefine America’s relationship with the world.