Hillary Clinton and Donald Trump are proposing the most protectionist, anti-trade policies we’ve heard since President Herbert Hoover signed the Smoot-Hawley Tariff Act in 1930.
Trump recently delivered a speech intended to demonstrate his grasp of trade policy and outline what he would do as president. So it’s worth fact-checking some of his comments.
“Today, we import nearly $800 billion more in goods than we export.”
The driving concept behind Trump’s economic policy is the belief that other countries are beating us on trade, which for him is proven by the existence of a trade deficit. Many, and perhaps most, economists argue that trade deficitshave little bearing on a country’s economy, but even so, Trump’s not telling the whole story.
According to the U.S. Census Bureau, the 2015 trade deficit in “goods” was $763 billion. What Trump failed to mention is that U.S. companies sell more “services” to other countries than those countries sell to us, creating a services surplus of $266 billion.
Put them together and the actual trade deficit for 2015 was about $500 billion, not $800 billion.
There’s more. The Energy Information Administration says the U.S. spends about $200 billion annually importing oil.
Oil imports show up as part of the trade deficit, but buying foreign oil doesn’t cost any American jobs because we don’t produce enough domestically as it is.
Subtract oil imports and the trade deficit diminishes significantly. In fact, when the price of oil was much higher and the U.S. imported more of it, especially before the fracking boom dramatically increased domestic production, oil imports accounted for most of the trade deficit.
“Our politicians have aggressively pursued a policy of globalization—moving our jobs, our wealth, and our factories to Mexico and overseas.”
Trump just reopened the Trump Turnberry golf course in Scotland, which he bought in 2014. By his reasoning, shouldn’t he have spent that money in the U.S. where he could have hired American workers rather than foreigners?
The fact is, politicians don’t create jobs in other countries; companies do—and often for good reasons. Coca-Cola sells a lot of its products in Mexico. Toyota sells a lot of its cars and trucks in the U.S. So both companies have factories in those nations. I recall Americans being excited when foreign carmakers built U.S. factories and hired U.S. workers, so what’s wrong with U.S. companies building foreign factories?
“America has lost nearly one-third of its manufacturing jobs since 1997—even as the country has increased its population by 50 million people.”
The number of manufacturing jobs has indeed declined since the 2001 recession. And Trump wants to blame the North American Free Trade Agreement (NAFTA) for it.
However, there were 16.9 million U.S. manufacturing jobs in January 1994, when NAFTA went into effect, and that number rose over the next four years, peaking at 17.6 million in April 1998. If Trump is right, shouldn’t manufacturing jobs have declined?
That job growth came to an abrupt halt with the 2001 recession. But as the St. Louis Federal Reserve Bank shows, manufacturing jobs always decline during economic downturns. Usually they return once the economy picks up, but that didn’t happen in the 2000s.
Still, manufacturing output has risen every year since 2000, excluding the two recessions, from nearly $1.6 trillion in 2000 to more than $2 trillion in 2013, according to the National Association of Manufacturers. New technology, not trade agreements, played a major role in those job losses because it allowed companies to increase production with fewer workers.
To be sure, some U.S. companies have off-shored jobs to other countries, usually to lower their labor costs—just as Trump did with his signature line of men’s clothes, which were made in China and elsewhere.
And speaking of labor costs, neither Clinton nor Trump has put enough blame on the Obama administration policies for job losses. Employers must now pay for health insurance, unlike their overseas competitors. Washington has piled on costly business regulations for years, and the president wants to push wages and benefits higher, making it even more expensive to hire U.S. workers.
What trade agreements have done is lower tariffs (i.e., taxes) on foreign products, making them more affordable for U.S. consumers. Trade doesn’t destroy jobs, but politicians trying to get elected often do.