Donald Trump’s big speech about trade on Tuesday was relatively free of brazen lies. But the underlying message of the address -- a promise that his presidency would work out well for working-class Americans -- was as misleading as anything he’s said on the campaign trail.
The setting for the speech was Pittsburgh, Pennsylvania, where employment in the region’s historic steel industry has declined by 44 percent since 1990. As president, Trump vowed, he would stop and even reverse that decline by getting tough with China, Mexico and other trading partners -- slapping tariffs on their exports, punishing them with sanctions and rewriting the trade agreements that, according to Trump, have allowed these countries to steal American jobs.
“The error of economic surrender will be over,” the presumptive Republican nominee proclaimed. “A new era of prosperity will finally begin.”
But in making this case, Trump wasn’t simply talking about trade, or even manufacturing more generally. He was also talking about a divide in American politics between the masses and the privileged few -- and why he, not presumptive Democratic nominee Hillary Clinton, is the candidate on the side of the masses.
The claim is totally at odds with what Trump is actually proposing to do as president.
“In talking about trade and its impact on areas like western Pennsylvania, Trump has identified a real and serious problem.”
In talking about trade and its impact on areas like western Pennsylvania, Trump has identified a real and serious problem. Overall, most economists would agree, trade has been beneficial -- by reducing the prices of consumer goods, creating new markets for exports and allowing the economy to grow faster. And that’s to say nothing of the ways economic integration has reduced international conflict.
But that doesn’t mean every individual or every group of people is better off, and recent research has confirmed what some trade skeptics and labor advocates have been saying all along: Trade can be absolutely punishing to communities that lose manufacturing jobs to competitors overseas. In those places, cheaper goods and other benefits of trade are small consolation for jobs that no longer exist.
As Brookings economist Henry Aaron put it recently in an interview, “Opening up freer trade is good for the nation…as a whole and in the long run. … But it hurts some American companies, and that means some American workers, too.”
The trouble is that undoing trade’s effects on areas like western Pennsylvania would be a heck of a lot more difficult than Trump makes it sound. Ripping up the old trade agreements and imposing massive new tariffs would likely set off a trade war that would have the precise opposite effect of liberalized trade: Prices would rise and growth would slow.
These kinds of trade-offs in trade policy are by no means hypothetical. In fact, it’s possible to see a miniature version of them playing out right now. Earlier this year, the U.S. slapped tariffs as high as 266 percent on some forms of Chinese steel because of a U.S. government finding that the Chinese were “dumping” their products on the market -- in other words, selling steel at unreasonably low prices, well below cost, in order to prop up the Chinese steel industry.
Steelmakers in the U.S. are thrilled but, as the Wall Street Journal reported in June, the tariffs are a “double-edged sword.” Companies that manufacture goods with imported steel say they will have to raise prices and one executive, from a firm that manufacturers school chalkboards, told the Journal that his company might have to shutter a factory because customers would be cutting back on orders.
That’s not an argument against such targeted tariffs, which arguably represent the kind of retaliatory and remedial action necessary to keep a free trade regime functioning. There’s a balance to be struck, between easing restrictions on trade and reinforcing the standards that matter. Even among relatively like-minded economists, there’s a vigorous debate about where exactly that balance should be.
But the very real costs to even this highly defensible tariff on Chinese steel dumping is a reminder that aggressive trade policies have very real downsides -- and that an all-out, indiscriminate assault on existing trade arrangements, like the one Trump seems to have in mind, could easily leave working-class Americans much worse off than they are today.
That’s particularly true given the rest of Trump’s agenda. His statements about policy are infrequent, vague and sometimes contradictory, making it difficult to pinpoint exactly what he would do as president. But the one policy proposal he has outlined in detail -- his tax cut -- reveals quite a lot. He would lower taxes on both corporations and individuals, reducing government revenue by something like $10 trillion over the next 10 years, according to analysis by the Brookings- and Urban Institute-run Tax Policy Center.
That’s a lot of money, even by the standards of Republican tax cuts. And while the wealthiest Americans would get windfalls from Trump’s plan, working-class Americans would get significantly less money, in both absolute and proportional terms.
Of course, Trump claims his tax cut would make the economy grow even faster. But the quick addition of so much new debt, combined with the contractionary effect of Trump’s new tariffs, could lead to a sudden and serious recession, as a recent report from Moody’s Analytics suggested.
And for working-class people, the real cost of the tax cut might come over the longer term, since the loss of so much revenue would almost certainly require massive spending cuts -- first to discretionary programs like education, infrastructure maintenance or biomedical research; and later to entitlements, including Medicare and Social Security, even though Trump has pledged to protect those programs.
"It is hard to see how you finance that without decimating defense spending, Social Security, or Medicare," Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley, said. "There’d need to be big cuts to a wide range of services and supports."
Throw in Trump’s vow to repeal the Affordable Care Act and musings that he might lower the federal minimum wage standard, and the likely end result of Trump’s economic agenda would be an economy providing even fewer well-paying jobs -- and a government in an even weaker position to help those struggling to find work.
“Cutting taxes on the rich will only hurt working people.”
During the Pittsburgh speech, Trump repeatedly cited data from the Economic Policy Institute, a liberal think tank that champions working-class Americans and has been among the most critical of free trade agreements. But ever since Trump spoke, EPI’s researchers have also been among the most vocal in pointing out that Trump’s policies, on the whole, would hurt the very people he’s claiming to defend. (See, for example, the interview that EPI president Lawrence Mishel gave to the Washington Post’s Greg Sargent.)
What working-class Americans really need, the folks at EPI say, is a much broader effort to raise their living standards. That effort might start with a more aggressive posture on trade. But it would also include stronger unions, spending on public works, more financial assistance with child care and other necessities -- as well as better support for people who lose their jobs.
“Cutting taxes on the rich (another Trump goal) will only hurt working people,” Robert Scott, EPI’s chief economist and a supporter of more aggressive trade policies, told The Huffington Post in an email. “We need to fix the domestic economy -- rebuild U.S. infrastructure, which will take lots of public spending and tax revenues, and tax carbon and make the transition to a clean energy economy, which is also not cheap, and invest in rebuilding manufacturing, and invest in the social safety net.”
And Trump, Scott says, “is not the guy to do any of these things.”