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Lifezette: Trump Faces Colossal Challenges to Restoring U.S. Competitiveness

By Kevin L. Kearns
Monday, December 26, 2016

On the campaign trail this year, Donald Trump repeatedly cited the roughly $800 billion goods trade deficit that the U.S. racked up in 2015. It’s a stunning figure, to be sure — and one that accurately depicts the continued hemorrhage of American wealth and productivity as more and more of the nation’s working- and middle-class jobs disappear, and manufacturing establishments shut down or move overseas.

For decades, the popular media has simplistically explained away the loss of factories and jobs as a natural result of free trade and globalization. A current theme is that the cause of all lost manufacturing jobs is automation. While that factor has played some role, Carrier and companies like it are not moving to Mexico or China for better robots. Overall, these assertions are the result of a narrow, ideological, ill-informed worldview that overlooks far greater problems.

Under the Trump trade regimen, other countries … will no longer be able to develop by stealing market share in the United States and displacing U.S. factories and jobs.

In fact, while the United States has benevolently maintained the world’s most open market for decades, America’s major trading partners have instead preyed on American firms through a variety of calculated tactics. The result? American industries and companies have paid a huge price from such targeted assaults.

The 2016 presidential campaign served as a wake-up primer for the American people, opening their eyes to some of the real challenges facing the nation’s manufacturers. And that’s because issues like currency manipulation never previously drew such focused attention. But if the incoming Trump administration is to have any success at restoring American competitiveness, it needs to promptly and thoroughly respond to all the stratagems and attacks that constantly beset the nation’s manufacturers.

Donald Trump’s trade agenda to date has been centered on killing the Trans-Pacific Partnership (TPP), saving jobs at Carrier, imposing 35 percent tariffs on outsourced companies, promising to renegotiate trade deals (especially NAFTA), tackling currency manipulation starting on Day One, and perhaps placing a 45-percent tariff on goods from China. Trump has scored a victory on the TPP, and has achieved a partial success by saving some Carrier jobs. These are good first steps for someone who is not yet president.

But while Trump's instincts are generally correct, he has a problem that might be expected from a keep-'em-guessing showman: His policies are ad hoc. The United States, as the saying goes, relies on a government of laws, not men — or negotiators. Trump so far has failed to articulate an in-depth, across-the-board set of policies — a full-fledged manufacturing and technology strategy —upon which U.S. businesses, as well as foreign companies and governments, can base their decisions.

Changing 65 years of disastrous trade policies is not going to be an easy task and, in fact, may not ultimately succeed given the extent of America's ongoing industrial decline. Japan, Germany, and other industrial powers have mastered products and processes that surpass ours, and in many areas possess superior technical know-how—which is the "secret ingredient" for an economy of the future. For the last 15 years, the United States has run large trade deficits in advanced technology products, now cumulatively totaling $1 trillion — in a sector we dominated during the 20th century.

Trump will meet opposition both at home and abroad when he tries to change course. Already his limited contact with Carrier is being called "industrial policy" — the term being used pejoratively to connote Soviet central planning, which it emphatically is not. In fact, many democracies use industrial policy to boost their manufacturing capabilities, and they have hardly turned into so-called "command economies."

A constant refrain in the media is that Trump will cause a "trade war" if he acts on his promises. This assertion overlooks the fact that America is already in a long-standing trade war, and Trump will merely be responding to, or retaliating against, our trading partners' tricks.

Putting labels aside, it is undoubtedly true that U.S. trading partners are going to take strong issue with any "upset-the-apple-cart" policies from Trump. It's instructive that President Obama's five-year initiative to double U.S. exports was a complete failure. It was based on the faulty premise that America's trade deficit was this nation's fault since foreigners really wanted to buy U.S. products — but we didn't try hard enough to sell to them. This Obama analysis was woefully naive, dismissing the extensive barriers to increased U.S. exports imposed by foreign mercantilism.

Any "increased exports" plan that Trump might contemplate to solve our problems will likely meet the same fate as Obama's. Our trading partners simply do not want to abandon their domestic producers and spend hard currency to up their purchases of American-made goods. Nor are any of these countries willing to transfer large amounts of productive capacity — and therefore wealth-creation capability — back to America. They believe they "stole it fair and square" from a lethargic, inept United States, and it is theirs to keep.

Our commercial rivals have staked their economic bets, and designed their export-led systems, on the belief that the United States would always be there as a source of wealth transfer — and would never take action against their protectionist schemes. Of course, with the American political class and other elites in thrall to free-trade theory and ignoring the harsh reality of deindustrialization, foreign powers may have thought that suppressed American workers were permanently contained and reconciled to their collective fate. And perhaps those workers would have been — had the unexpected Trump phenomenon not occurred.

If Donald Trump is true to his word, the global trading system will, of necessity, be dramatically altered — whether through a "trade war" or something more benign. In fact, the American adoption of an industry and technology strategy will involve the balancing of a system that is dangerously out of whack and growing more so every day. For there is no longer enough American wealth to go around, to buy allies and cooperation, to police the world, and to sanction or fight enemies. And Trump is correct in predicting that without a big change, the United States will suffer an unprecedented crash.

Under the Trump trade regimen, other countries will have to figure out different economic development mechanisms, mostly building their home markets and enhancing the lives of their populations. They will no longer be able to develop by stealing market share in the United States and displacing U.S. factories and jobs.

A course correction will be better for us and them now and in the long run, as the last two administrations have repeatedly told the Chinese. Remaining on the current path, where the United States is drowning in debt and fading as both a superpower and a market, is just not a sensible option—although free-trade proponents seem happy to continue. So the advent of the Trump administration is a very good time to start the weaning process.

Given the likely intransigence of our trading partners, it is unclear how Trump can "bring the jobs back, and fast, folks" without very dramatic, unilateral action. More free trade agreements or even renegotiated trade deals will not substantially reverse the downward trend. Trade agreements take years to negotiate under the best of circumstances — i.e., when foreign nations think they are going to feed at the trough — but that's hardly going to be the objective with Trump renegotiations.

Overall, the dire current situation points to a lengthy list of problems that the Trump administration must confront on Day One to begin the task of saving U.S. manufacturing. In a follow-on piece, I will discuss the specific challenges to be confronted — and the requisite policies needed — to begin a miracle turnaround for the U.S. economy.

https://www.lifezette.com/polizette/trump-faces-colossal-challenges-restoring-u-s-competitiveness/


Kevin L. Kearns is President of The United States Business and Industry Council. Prior to joining USBIC in 1993, he was a Senior Fellow at the Manufacturing Policy Project, a Washington, DC think tank. For 13 years before that he was a U.S. Foreign Service Officer with overseas assignments in Germany, Korea, and Japan, where he witnessed firsthand the operation of highly cartelized, mercantilist economies.
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