I confess that I am no fan of Trump. Actually, that dramatically understates it. I regard him as a dangerous populist ignoramus whose crudity of character makes him unfit for office. When he won the nomination, I sent the Republican National Committee a letter of resignation from the party to which I had belonged for four decades, and re-registered Libertarian. (I did this despite my impression that Gary Johnson was either a hopeless dope or congenitally loopy.)
It was for me, in short, a completely miserable election.
My only hope was that Trump, once in office, would at least pretend to be presidential, and would drop his nativist and protectionist stances, having decisively won the populist vote. And I admit I was cheered when he appointed a good judge to the Supreme Court, talked about repealing and replacing Obamacare, and also talked about lowering at least corporate taxes. He has so far been unable to deliver.
Nativists fear even legal immigrants, not seeing how beneficial they are to the economy.
But unfortunately he has pursued his nativist and protectionist agendas. On the nativist agenda, he killed DACA — setting up the deportation of upwards of a million young people brought here involuntarily, and raised with scant knowledge of the countries of their births. Not only did he refuse to increase the H-1B visa and other programs that legally allow in college-trained STEM and medical professionals, but he has actually proposed cutting all legal immigration by half. He continues demanding that a wall be built on the border with Mexico, even though illegal immigration from Mexico has been steadily dropping for a decade — indeed, for the last few years, more Mexican immigrants have returned home than have come north. (That’s because Mexico has a good growth rate, and is now in the top ten manufacturing countries on earth). Nativists fear even legal immigrants, not seeing how beneficial they are to the economy. For example, immigrants and immigrants alone are the reason we don’t face the same demographic implosion that the European countries and Japan face, and immigrants are disproportionately likely to open new businesses.
On Trump’s protectionist agenda, after killing the Trans-Pacific Partnership Agreement, Trump has set his sights on killing NAFTA. Several recent Wall Street Journal articles report on the administration’s attempt to renegotiate this deal, signed back in 1994. Trump’s curious hatred of Mexico and Canada is as bizarre as his love of Russia. In this he imitates Obama, who bashed NAFTA in his primary fight with America’s Sweetheart Hillary Clinton. At the time, most commentators assumed that this was just “Bubba bait” — that is, demagogic talk aimed at arousing nativism and protectionism by telling the economically illiterate that Evil Foreigners have “stolen” American jobs, jobs that usually have been automated away.
But to many people’s amazement, Obama — Trump’s match in protectionism — started trade wars with both Mexico and Canada shortly after assuming office. He stopped only when those countries fought back and kicked our economic behinds. For example, Obama violated NAFTA to “save” 200 trucking jobs (at the behest of one of his supporters, the Teamsters Union), but when Mexico retaliated with stiff tariffs against our farmers, 25,000 American jobs disappeared, whereupon Obama cancelled his policy with limited publicity.
After killing the Trans-Pacific Partnership Agreement, Trump has set his sights on killing NAFTA.
To his credit — and as readers of this estimable journal know, I was a consistent critic of Obama’s regime — Obama slowly but surely came to understand why more than 90% of economists favor free trade. Obama eventually approved of the three free-trade agreements left to him by George Bush, and late in his second term negotiated the TPP. Who knows, perhaps Obama finally read that Econ 101 text that he was too negligent to read as an undergrad.
But Trump is even more of a populist fool. He immediately killed the TPP, and has now targeted NAFTA. He is apparently surprised that both Mexico and Canada are fighting back. A bully is always amazed when the smaller boy he chooses to pick on hauls off and smacks him.
The Wall Street Journal reports just how close to a collapse of the NAFTA talks we are. We have seen record highs in the stock market, but this would almost surely change quickly should the talks collapse. One economic consulting firm, the Colorado-based ImpactECON, has put the net job losses at 125,000 for Canada, 256,000 for the US, and a whopping 961,000 for Mexico over the next three to five years.
Trump is apparently surprised that both Mexico and Canada are fighting back.
For those populists who will cheer the disproportionate job losses to Mexico, well, they may want to ask themselves whether their protectionism trumps their nativism here. That is, if we move to destroy nearly a million Mexican jobs, where oh where will all those newly unemployed Mexicans go to avoid starvation? Trump had better be prepared to build his wall quickly.
If NAFTA does get repealed, tariffs would undoubtedly result. At a minimum, the three member states would revert to their average tariffs rates: 3.5% for the US; 4.2% for Canada; and 7.5% for Mexico. But there is good reason to think that the tariffs will be much higher. Both Canada and Mexico will be furious at seeing the US dump the deal and will likely raise tariffs enormously. Moreover, the collapse of NAFTA and the Mexican job market will be the result. The American Automobile Policy Council estimates that the rise of the price of domestic auto parts from the tariffs will cost 50,000 US jobs. Another economic thinktank, Boston Consulting Group, gives the same estimate.
The ImpactECON study says the small gains in US employment in production of machinery and chemical industries will be swamped by losses in the agricultural, auto, and apparel industries.
Mexico could simply embargo products from the US — it just ordered its first shipment of wheat from Argentina, no doubt in anticipation of the looming trade war.
This last is a nice point — a point that Frédéric Bastiat would have underscored. What average Americans — including Trump — expect to see after NAFTA is some US manufacturing jobs disappearing while trade flourishes between us and our natural neighbors. They assume the trade will cause the job losses, which is debatable. But worse, they don’t see the gain in jobs in farming and other industries.
Under NAFTA, our agricultural exports to Mexico and Canada have risen fourfold, hitting $38 billion last year. If NAFTA is junked, the Mexicans could revert to their pre-NAFTA tariff levels of 75% on US chicken and corn syrup, 45% on turkey, potatoes, and dairy products, and 15% on wheat. You see, protectionism works both ways: Mexico pre-NAFTA was trying to protect its farmers from competition from American farmers. In fact, Mexico could simply embargo these products from the US — it just ordered its first shipment of wheat from Argentina (30,000 tons), no doubt in anticipation of the looming trade war.
The Mexicans, by the way, are especially angry. All major candidates for the upcoming presidential election there are opposed to what Trump is doing, but the one who is poised to make the most gains is the ultra-leftist Lopez Obrador. If Mexicans, in their righteous indignation, elect him, we could have a Cuba right on our border. For instance, Mexico could retaliate by cutting a free trade agreement with China, and allowing the Chinese to set up naval and army bases on its soil — which it is completely free to do under international law.
Talk about a “game-changer”: for the first time in US history, we would face a military threat from one of its long borders.
Even the author of the 2011 report by the leftist thinktank Economic Policy Institute, Robert Scott, has changed his mind. The report purported to show that NAFTA cost 700,000 US jobs, and was widely cited by protectionists of all political stripes. Scott now says that if NAFTA is abandoned, manufacturers will just “move” jobs to Asia.
The real “culprit” behind manufacturing job loss is not international trade; it is automation and creative destruction.
The NAFTA talks are approaching crisis phase, because the US is making unreasonable demands. For example, the US negotiator Robert Lighthizer wants a “sunset clause” requiring the agreement to be renewed every five years, and a watering down of the provision for arbitrating disputes.
Of course, the joke in all this is that the US was losing manufacturing jobs long before NAFTA. As early as 1974 sociologist Daniel Bell discussed the shift from industrial work to high-tech and service sectors in his book The Coming of Post-Industrial Economy, and the term “rust belt” was coined in 1982, more than a decade before NAFTA came into being. In fact, over the last decade all of the top ten manufacturing countries in the world lost manufacturing jobs. The real “culprit” is not international trade; it is automation and creative destruction. We don’t hand-bolt wheels on cars anymore, not because the Mexicans do it, but because robotic arms do. And we don’t make buggy whips anymore, not because the Chinese make them cheaper, but because we don’t have buggies.
The failure of many American workers to adjust to the shift from low-knowledge to high-tech factories results primarily from the pathetically poor average education they receive. I mean, you can’t read the instructions manual for the new computer-aided machinery if you can’t read to begin with. While other countries are reacting to the evolution of the industrial economy by building new colleges and trade schools, cranking out engineers, doctors, scientists and skilled workers, we struggle with risible high school and college dropout rates, a proliferation of humanities and social science majors, and vanishing trade schools.
We don’t make buggy whips anymore, not because the Chinese make them cheaper, but because we don’t have buggies.
All of this could be cured if we did what supposedly socialist Sweden did over a quarter century ago: immediately adopt a universal voucher program — that is, require all public schools in America to adopt perfectly pro-rata voucher systems within one year. But this would arouse the teachers’ unions like nothing else. They will protect the cushy jobs of mediocre and even positively bad teachers, forcing parents to keep their kids in failing schools.
Rising protectionism and fear of trade don’t just run the risk of depression and trade wars — which in turn run the risk of military war. They also distract us from the real cause of long-term blue-collar unemployment: a horribly broken educational system.