Trump’s Job Promises are Fiction – Free Trade is Fiction, Too
Economist Heiner Flassbeck tells Paul Jay that neither a high tariff wall or neo-liberal free-trade will provide jobs and higher wages – but there are policies that will
PAUL JAY: Welcome to The Real News Network. I’m Paul Jay in Baltimore.
The debate between protectionism and free trade is as old as modern manufacturing itself. From the 19th century, throughout the 20th century, and it continues today. Do economies do better if they are protected from foreign trade? Or is free trade more in countries’ interests? Now, when I say country, that’s kind of the nub of the real question, because there’s no such thing as just a country’s economy, there’s no such thing as just America. When Donald Trump says, “America First,” the question is: whose America? There’s no question that when free trade agreements like NAFTA were first negotiated, those negotiators always put America first. They put corporate America first. As did Canadians put Canadian corporations first, and Mexico put the Mexican elite first. And there’s no difference now, except that Trump wants to renegotiate these saying that he can get a better deal for corporate America, even though he says he’s going to do this in the name of American workers.
All that being said, there are real problems with the free trade agreements, including NAFTA and TPP, of course. But this is what Trump got elected on, and here’s a recent speech. This is February 17th at the Boeing plant.
DONALD TRUMP: I don’t want companies leaving our country. Making their product, selling it back, no tax, no nothing, firing everybody in our country. We’re not letting that happen anymore, folks, believe me. There will be a very substantial penalty to be paid when they fire their people and move to another country, make the product, and think that they’re going to sell it back over what will soon be a very, very strong border.
PAUL JAY: A very, very strong border. Well, that means tariffs, and that’s what Trump has been threatening. So, are the issues he raises legitimate? Is the solution he’s proposing possible and legitimate? Which is a serious tariff wall against particularly American companies, he says, but a great deal, I believe, as much as 50% of American imports are actually multinationals based in the United States bringing products that are coming from other arms of the same multinationals. Is Trump really ready to take on corporate America and their global supply train?
Well, I shouldn’t say train – I should say chain.
Now, joining us to discuss free trade and give us some historical context, and to assess just what Trump is talking about, is Heiner Flassbeck. Heiner is director of Flassbeck Economics, a consultancy for global macroeconomic questions, and the editor of Makroskop – I hope I pronounced it right – an Internet magazine. Heiner is the former Chief of Macroeconomics and Development of the United Nations Conference on Trade and Development, UNCTAD. He’s also co-author of the book “Against the Troika: Crisis and Austerity in the Eurozone,” which he wrote with Costas Lapavitsas.
Thanks very much for joining us, Heiner.
HEINER FLASSBECK: Thank you for inviting me.
PAUL JAY: Let’s start with the basic concept: “put America First” says Donald Trump. As I said in the introduction, does that mean that the trade negotiators that represented the United States in the beginning with NAFTA, and those that were involved in TPP, and other of these types of trade agreements, did they not put America first?
HEINER FLASSBECK: No, clearly, for them they had American priorities. They had American targets. They had an American agenda, that’s no doubt about it. And looking at the WTO, and the GAP before, it was always very much dominated by the United States of America. And many developing countries, for example, complained that the American influence is too strong, and America First is too strong in the past already.
PAUL JAY: Now, there’s no question that these free trade agreements, to a large extent, were not just about access to foreign markets for American products, it was very much about being able to play sections of the global working class against the American working class and drive American wages down, including shipping jobs out, although automation probably had as much to do with job loss as that, but it certainly was a factor.
But how does Trump, how can he possibly combine or balance his loyalty to corporate America? He never stops talking about how important it is for billionaires to make money, and do what he says: bring jobs back, put up a tariff wall. I mean, that would drive American wages up, which I personally think is pretty good, but I just can’t imagine him being serious about following through on this.
HEINER FLASSBECK: Absolutely. These are false contradictions, so to say, in many risk benefits. So, first of all, a free trade – let me say that very clearly – free trade is a fiction. The good, efficient free trade does not exist in this world. There are many distortions to the ideal of free trade that neo-liberal ideologists are advocating. This does not exist. For example, the outflow of direct investment from the United States to China or so, the catching up of developing countries, has nothing to do with free trade in a traditional sense so in the sense as it was invented 200 years ago. And there are many, many people would make it to believe that it still exists. This is the first thing that is important.
The second thing is that for the United States foreign trade is not the most important thing. For the United States important is the domestic development, and domestic growth, and domestic investment. These are the driving forces of the economy, and I think you will rather soon learn that if he would be serious on his infrastructure program that would be much more important to American jobs than exports and imports.
But one point I should mention also is that the United States have a current account deficit now for more than 30 years, and this is clearly a burden on the American economy. It’s always there. It is smaller than it had to be say 10, 15 years ago, in terms of in relation to GDP. But it is still there, and, so far, he has a point and that point was also made by Obama in the G20 and elsewhere, that the surplus countries should do more to stimulate their domestic demand and that the surplus countries, like Germany for example, should do more to stimulate wages. And one country, one big country, has done that. China has done it. China had huge wage increases, their current account surplus went down. But Germany, for example, my country, has still the largest current account surplus in the world, and wages are not rising very much.
PAUL JAY: Why is this a weight on the American economy, that there’s a current account deficit, particularly with China? Why does that matter to the American economy?
HEINER FLASSBECK: Well, in principle a deficit means that you’re losing jobs. Indeed, there’s no doubt about it. So, the country that is exporting more and importing less has a positive balance on jobs and foreign trade. The contributions from foreign trade to growth, for example, in Germany, are positive for the last 15 years or so. In the G20, there are only two or three countries that have positive contributions overall, but for most of the years, the United States’ contribution from foreign trade was negative. Which means, this is so to say, a zero-sum game coming from the current account deficit and current account surplus which is overlaying the normal benefits from free trade that we are hoping for. Which, as I said, are very much an ideology. We do not know – nobody knows – what the real benefits from free trade are, but these contributions, the direct effect from current account surplus and deficit are overlaying these general benefits from free trade that people are hoping for. And so, the overall benefit from trade can indeed be negative for a country with a large current account deficit.
PAUL JAY: What would be the consequences if Trump actually were to follow through? And I think even within the Republican Party he’s going to be seriously opposed because a lot of American corporate interests do not want this. Certainly any sector of the economy that exports is afraid of a trade war. But if he follows through with what he just said in that clip, a strong border, and I think we’ve heard from him anything from 25% to even 35% tariffs, although they seem to… when he talks about it, he seems like he’s targeting American companies that have off-shored jobs, but I don’t understand how he could have a tariff just against American companies shipping stuff in. It’s hard to believe he would do that.
HEINER FLASSBECK: Yeah. No, that’s definitely impossible, and it’s much, much too difficult and much too sophisticated what these people – if they’re thinking in these terms – are heading for. He should talk much more about the value of the dollar. The value of the dollar against the euro is definitely too high. The dollar has appreciated quite a bit against the euro in the last one and a half years, and this brings about an effect that is as big as the import taxes they’re talking about, or the tariff they’re talking about.
But the other problem is against developing countries like China and Mexico. There, this is very dangerous what he’s saying, because these countries are doing something that is absolutely normal. They have a catching-up process, and catching-up means that you import technology from the developed world and you combine this imported, so to say, “hyper-activity” with your low wages, and that gives you a competitive advantage. And to take that away from developing countries is really, really dangerous because if it is not done by American companies so the technology is not exported from the United States to the developing countries like China or Mexico, then first of all other countries will do it. If you would try to prevent it overall, then the developing countries have still other options. They could do it like Japan and Korea, who never had this direct investment, but who, so to say, with the help of the government created the capital that allowed them to catch up.
So, trying to stop this process is more or less impossible, and is very dangerous because it will – if it would be successful – would be terrible for the developing countries. So, this is really a silly point that he has said.
PAUL JAY: Well, the China issue and the Mexico issue are different because there’s not a free trade agreement with China. There the question’s straightforward, just the low wages being used to increase American corporation profits. They’re producing stuff far more cheaply. On the other hand, there’s a certain subsidy going on of American workers’ living standards. If you go to Walmart and you can buy kids’ clothing, a whole set of clothes for, like, $9 and $10 sometimes, that’s because it’s manufactured by someone who’s making so little in terms of wages. But in terms of unraveling this relationship with China, changing the current account deficit, that’s got nothing to do with changing the free trade agreement, because there isn’t one. So that’s just about a tariff wall, and then the trade war with China – where does that lead?
HEINER FLASSBECK: Well, as I said, that would bring about negative consequences for the US economy, also, and, as I said, this process of catching up from developing countries so that at a certain point the developing countries are producing the t-shirts and no longer American workers is absolutely normal. And it’s not a danger at all. It’s not a danger to the US economy.
By the way, the US economy, you shouldn’t forget, has brought down unemployment much more than Europe has done in the last five, six years, so the US economy was not so bad as many people are saying. Insofar Trump’s right to say we need more jobs, we need better-paid jobs, but this has not hampered, that has not stopped, so to say, by foreign trade and the movement of US companies or other companies to developing countries. If he wants to do something for higher wages then he should strengthen the unions. He could introduce new laws that give unions much more strength than before. He could help with a real full employment policy, if you have really a government dedicated to full employment, then wages would go up. What we see in the United States, despite the recovery in the last five years, is still very low wage growth, and one of the reasons why the US economy is not really under steam as it should be.
PAUL JAY: You can’t drive down wages in the United States, and expect there to be more jobs. You reduce demand in the United States, you’re not going to give rise to more employment.
HEINER FLASSBECK: Definitely.
PAUL JAY: But this idea of off-shoring jobs has been one of the pieces of the cause for less employment in the United States. Is it …?
HEINER FLASSBECK: Yeah. I think it’s over-estimated. It’s dramatically over-estimated. I know there are many studies around forwards, back and forth, as well as there are studies for technology, but you have to be careful. Technology and, so to say, international structural change are not, per se, a force that drives down or up jobs. It always depends on the reaction of economic policy. So, if you would compare Europe with the United States, as I said, in the last ten years or so, you would see that the United States are much more successful than Europe in creating jobs. Although trade has developed in Europe in the same way and technology has developed in Europe in exactly the same way as in the United States.
So, this is an isolation of factors that I think is not justified.
PAUL JAY: So if you’re really, if your objective really is increasing employment in the United States and higher wages, then you’re talking about more unionization. And you’re talking about creating a stimulus plan that’s government-directed. A direct government employment plan, which means you finance that. You’re prying, through taxation, of the upper echelon of the elites.
HEINER FLASSBECK: Well, you do it through taxation or you do it through the capital market. They’re both ways. It’s the United States are in a very peculiar situation insofar as, if you look at the financial sector balances of the United States, which are, so to say, the balances that show whether a sector is a net saver or a net debtor, then you see that in the United States now you have not only private households that are net savers, so that are reducing demand overall, but the company sector in the United States, are also a net saver. Which is very un-typical, which we didn’t have before. We have it in the last ten years in many countries. But at the same time you have a current account deficit, so that means that the foreign countries are also a net saver for the United States. This means the United States is in a situation where, at this moment of time, either you bring the companies back into the debts and into a debtor situation, which would mean to tax them higher or to take money away from them in one way of the other, or to encourage much higher wage increases or so. Or the government has to take on more debt because there must be a debtor or they cannot be not only savers, they must always be a debtor.
PAUL JAY: But a lot of these corporations are sitting on mountains of cash.
HEINER FLASSBECK: They’re sitting on mountains of cash. That’s the main problem. It’s not they’re sitting on cash and they’re not investing so it seems. That is the problem we’re facing, and so far, any idea about cutting taxes for companies is absolutely crazy. It’s absolutely crazy in this very situation. The only thing that could be reasonable, but I’m very cautious, is to increase taxes for companies so that they get rid of those mountains of cash on which they’re sitting.
PAUL JAY: Okay. This is just the beginning of a discussion. Heiner’s going to be joining us regularly in the future, and if you have questions you’d like us to take up, please just write us at [email protected] That’s [email protected] Or you can put them in the comments below the video.
Thanks very much for joining us, Heiner.
HEINER FLASSBECK: Thank you for having me.
PAUL JAY: And thank you for joining us on The Real News Network.