Would a Trade Deficit be Good for Workers
CEPR co-director Dean Baker says that Trump’s haphazard proposals for tariffs are dangerous, but he’s right about the relationship between the trade deficit and the value of the dollar
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore.
Progressive economists have always argued that free trade agreements aren’t bad for U.S. workers. Well, it appears that Donald Trump agrees with that. Trump ran on an anti-free trade platform and this is probably one of the reasons he did quite well among workers in the rust belt of the U.S. Shortly after coming into office President Trump fulfilled his campaign promise and cancelled negotiations of the Trans Pacific Trade and Investment Partnership, also known as TPIP as well as TPP, the Trans Pacific Partnership. So the question now is, is Trump really for the workers? Is he following the progressive argument against free trade agreements? How do progressive economists react to these actions of an otherwise very conservative president? These are some of the issues that we’re exploring at The Real News with several well-known progressive economists. And joining us today from Washington, C.D. is one such economist, Dean Baker.
Dean is Co-director of the Centre for Economic and Policy Research in Washington, D.C. His most recent book is “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer”.
Thanks for joining us today, Dean.
DEAN BAKER: Thanks for having me on.
SHARMINI PERIES: So, Dean, in a recent blog post on the SEPA(?) website you argue that Trump’s trade arguments are largely right. That is, you cite Trump’s trade advisor, Peter Navarro, who argues that a lower trade deficit would really mean more jobs for U.S. workers. It seems that is a relatively uncontroversial statement because, in theory, a lower trade deficit could be the result of more domestic production. So then the big question is, how do we get there? Trump and Republicans argue that a 20 to 30% tariff on all imports could truly help U.S. workers. So what are the economic implications of such tariffs on the economy?
DEAN BAKER: Well, Trump’s been kind of all over the place in this. First point, the immediate topic of the blog, I was criticizing a piece in The Washington Post, which was essentially ridiculing Trump’s advisor Navarro, for saying that we could increase GDP and increase tax revenue by having a smaller trade deficit. And I was pointing out that’s not at all a ridiculous argument, it’s a very plausible argument if the economy is below full employment and we get the trade deficit down we’re getting increased output, we’re getting increased employment, that will generate more tax revenue, less payments for things like unemployment insurance, food stamps, other transfer programs. It’s a totally plausible story. So The Washington Post is completely out of line in ridiculing him. Now the question is how do you get to a smaller trade deficit, and Trump’s really been all over the place on this. I mean, I think the basic story anything you hear from Trump basically you trust zero. Well, the question is what’s he going to put on the table?
Now they have talked about tariffs, I think those are very foolhardy because they’re almost certainly going to be applied haphazardly. There are a lot of problems when you apply tariffs. The simple way that one would look or should look to address the trade deficit is get the value of the dollar down. And, for whatever it’s worth, Trump did talk about this during the campaign. So if he were to sit down with our trading partners, China’s the big one here, but there’s an issue with other trading partners, South Korea, Japan as well, and negotiate a decline in the value f the dollar, that would reduce the trade deficit and increase employment, particularly employment and manufacturing in the United States. That would be a good story. I have no idea if that’s what he plans to do.
SHARMINI PERIES: Right. Now, if you were to take tariffs the way they’re talking about it now, into consideration and actually, Robert Reich, in a recent article in Truthdig, criticizes Trump’s approach to trade quite strongly. He says that the America First trade policy misses the extent to which U.S. economy is completely intertwined with the global production chain. Imposing large tariffs of this sort on imports would actually hurt U.S. manufacturing more than it would help. He uses the example of Boeing assembling a plane from different parts from all over the world. If there’s tariff’s involved on the foreign-made parts, he argues that this is not a good thing. What is your reaction to that?
DEAN BAKER: Well, I think there is kind of a temptation to attack an idea because it comes from Trump. And, you know, again, I don’t like Trump, I wish he weren’t in the White House, but we have to try to keep our eye on the ball. And a good idea doesn’t become a bad idea because Donald Trump says it. If Donald Trump says the Earth’s round, it doesn’t make sense for us to run out and say, “No, it’s flat.” Now, again, I don’t think tariffs are the way to go. On the other hand, if the dollar were to fall, that would increase the cost of imported parts. The idea that that’s somehow a catastrophe is simply misunderstanding what actually happens in the economy. And in fact, what has happened in times past, the dollar fell by close to 30% between 2002 and 2007. If there was a catastrophe there I missed it. That is how you adjust the trade deficit and that actually is the way the market is supposed to work. So I don’t see a bad story there. Again, the idea of imposing tariffs haphazardly as Trump has indicated he might do, that’s a very, very bad idea. So I agree with Robert Reich there, if that’s what we’re talking about. But if the idea is that we’re going to try to address a trade deficit by getting down the value of the dollar, that’s something that makes sense, even if Donald Trump says it.
SHARMINI PERIES: Interesting. So then one of the main progressive criticisms of the so-called free trade agreements is usually that these agreements contribute to deregulation. That is regulations that are in place to protect the environment, labor standards, consumer safety, among other things, because they’re seen as impediments to trade. Now do you agree with that assessment? And how do you react to that criticism?
DEAN BAKER: You know it’s very much on the mark. And that’s why we really should never call them free trade agreements. They’re trade deals and some of it is reducing trade barriers and usually they do reduce tariffs, quotas, insofar as they’re there they eliminate them or make them less important, in any case. And that you could say, “Yeah, okay, those are movements towards free trade.” A lot of what these deals do is they increase patent and copyright protection. Well, those are protections. Those are protectionism. That’s a hundred and eighty degrees at odds with free trade, particularly it’s an issue with prescription drugs where we make drugs much more expensive because drugs that would almost invariably be cheap in a free market, can be very, very expensive with patent protection. That’s not free trade. And then much of these deals are about putting in place a structure of business-friendly regulations. That’s got nothing to do with trade. That’s simply saying, “Okay, we’re going to let businesses take advantage of these trade deals and basically work around the democratic process in the United States and other countries that are party to these deals.” That has nothing to do with trade. Often these measures, these regulations are very much against the environment, against consumer protection, against prudential regulation, the financial sector, that’s got nothing to do with trade. This is simply businesses running an end round against the democratic process in their country.
SHARMINI PERIES: All right, Dean, so then the last question is really about labor and labor unionization. Many, many unions have come out and fought many of these trade agreements because of the impact it has on labor and wages in particular. Your reaction to that?
DEAN BAKER: Well, they’ve been right to do it. You know, the unions were strongly opposed to NAFTA because much of the purpose of NAFTA was about putting U.S. workers, manufacturing workers, I should say, in direct competition with much lower paid workers in Mexico. Certainly bringing China in the WTO again, the same story with even lower paid workers in China and it’s had a very negative effect on large segments of the work force, both the manufacturing workers that lost jobs, others that had to take lower pay. And when you lose jobs in manufacturing those workers look to work in other sectors, in retail, other areas of the economy, it puts downward pressure on their wages. That’s both in theory and, you know, we have the evidence for that. There’s been a lot of good research in recent years, some done by very mainstream economists, David Autor at the Massachusetts Institute of Technology, that have documented the negative impact that these trade patterns have had on workers’ jobs and wages. So, labor unions have been right to oppose them. They are bad for most of the workers in this country and unless we put trade on a very different course, they would be right to oppose future trade deals.
SHARMINI PERIES: Now, isn’t one of the main goals of the Trump administration to de-unionize and weaken unionization in this country? And what impact will that have on labor standards, I guess, worldwide, really.
DEAN BAKER: Yeah well, certainly he’s indicated in the people he’s appointed or nominated, I should say, they haven’t been approved yet, have been opposed to labor standards, raising minimum wage, enforcing wage and hour laws. I’m thinking of about his two nominees for the Labor Department, that’s a very bad story. If unions are weakened further they’ve obviously suffered a lot in the last three decades, but sure, they’re still there. You could look to weaken them further as he’s proposed to do, for example with Right to Work laws that would allow workers to get all the benefits from a union and not contribute their share for representation. So yes, they want to weaken unions further and that’s going to be bad news for workers in the United States and elsewhere.
SHARMINI PERIES: All right, Dean, I thank you so much for joining us today and looking forward to your report next week.
DEAM BAKER: Thanks for having me on.
SHARMINI PERIES: And thank you for joining us here on The Real News Network.