Trump Has a Point About Free Trade, But Not Good Policy

Economists talk a lot about innovation.  But the tend to attribute the impressive growth in worldwide wealth mostly to global free trade.  The economics of being an economist, I believe, warps their view of reality.  Economics is a profession that thrives in the world of multinational corporations, and influential economists tend to go back and forth from Government to multinational corporations or Wall street.  Few main street companies are hiring economists.  So the view of the economics profession is skewed toward the welfare of big enterprise.

The key to a healthier and happier world, I believe, has more to do with innovation than with huge corporations having the freedom to do what they want around the world.  What really jump started the recent large reduction in world poverty wasn't globalization, it was the invention of the cellphone.

Economists skewed view towards big enterprise has led us to pursue unfettered free trade all over the world as a goal not to be questioned.  This produced the economic malaise among many voters that led to President Trump's election, Brexit and the election of nationalists/populists around the world.  

Regular folks here in the US have seen incomes stagnate for 30+ years as the folks at the top end of the spectrum have become vastly more wealthy, and in the process driven up asset prices.  Many folks can no longer afford a house or often even an apartment.  It would not be a surprise to discover our national homeless population now exceeds the population of some small states. 

It's a pattern we've seen before.  During the Industrial Revolution innovation and globalization produced years of breakneck growth where rich folks got very rich and working folks were losers.  In the US between the Civil War and 1900 conditions were so bad working men actually, as the years rolled by, became physically smaller and died younger.  Eventually exploited working folk started unionizing in the United States.  In Europe many become communists or fascists.  Ambitious politicians cultivated political power by setting groups of disgruntled people against other groups of people, leading to 40 years with two world wars that killed tens of millions of people.  

It is perfectly legitimate for regular folks to be unhappy with the current situation - they are net losers, while folks in countries far away where jobs have been moved are net winners along with the rich folks who own assets and businesses that produce those jobs overseas.  It is also understandable that regular folk resent immigrants coming in and adding to the labor pool that keeps wages low.  (Banning slavery never really became a political possibility in the U.S. before the Civil War until it became a labor issue - that slavery depressed wages for free working men).

But Trump is pursuing rear view mirror solutions.  His tariffs and immigration policy might have made some sense a decades ago when manufacturing required big pools of labor.  Increasingly manufacturing can be done by robots, or in many cases by folks with some computer savvy and a digital printer.  The need for manufacturing workers is shrinking and that shrinkage will accelerate as the technology of robots and artificial intelligence becomes more sophisticated.  Reimposing tariffs to protect manufacturing in the United States is an empty political gesture that ignores the real problem - income inequality that hollows out the demand that supports local main street economies.  

Equally nonsensical is building a wall on our southern border and cracking down on immigration,  Ever since the Great recession low skill immigrants motivated by economics have been leaving the country, not sneaking in.  Most of the recent wave of immigrants aren't coming for jobs, they are fleeing violence and corruption in their home countries where US meddling over the last 50 years has destabilized elected governments.

The Trump immigration policy is following the road Japan took decades ago, discouraging immigration even as the resident population got old.  Japan's policy has resulted in three decades of economic stagnation and a huge national debt.   

How do we keep the country (and planet) politically stable in the future when most folks may be, if working at all, stuck at the bottom watching the wealthy get richer and richer, pushing them to the geographical and economic margins?  One thing is certain - politicians will milk those disparities to set different groups against one another to gain personal power. 

Trade policy should focus on finding a way to allow developed countries to provide a mechanism for controlling big corporations that export jobs overseas where wages are low, and using their power to depress wages and increase profits.  A corporation doesn't exist in a vacuum however, so efforts to spread the wealth we as a country generate must  also provide protection from other countries where business can exploit the workforce.  

To be successful trade policy would have to be coordinated with an immigration policy that recognizes the value of ambitious immigrants.  Add a tax policy that discourages exporting jobs and provides incentives to push corporations to share wealth more broadly across the corporate employee spectrum.  

Trying to save manufacturing jobs that are declining through technology by imposing tariffs, and imposing restrictions on immigration because "our country is full", are not a recipe for long term economic health.