US workers need a new trade policy, not a Trump trade tirade

Back in 2016, presidential candidate Donald Trump was right to rail that the trade policies of his predecessors were in part responsible for the ills of workers and the environment in America’s industrial heartland. 

After winning the election, President Trump embarked on a trade tirade, shredding and replacing past trade deals, including the Trans-Pacific Partnership and the North American Free Trade Agreement (NAFTA), while mounting trade wars across the globe.

However, contrary to what President Trump is telling those same voters in 2020 as he seeks reelection, his trade policy has not improved the lot of the heartland or the country in general.  In fact, he has made it worse, as outlined in a new study we authored in collaboration with the Institute for Policy Studies and the Groundwork Collaborative.

Modern U.S. trade policy has its roots in the administrations of Ronald Reagan and George H.W. Bush, who exported “Reagan-Thatcher” style neoliberalism as they led negotiations resulting in the World Trade Organization (WTO) and NAFTA. Democrats have tinkered on the edges of successive trade deals in attempts to improve the stakes for workers and the environment, but they did not articulate a clear alternative.

Before Reagan and Bush, the global trade system allowed countries to pursue full employment and other economic goals alongside a set of rules that ensured one country’s pursuit wouldn’t come at the detriment of another. Before the WTO and NAFTA, the trading system was very beneficial to the U.S. and much of the world economy, but the efforts of the past 40 years have brought diminishing returns. Economists estimate that trade liberalization injected $1 trillion into the U.S. economy between 1947 and 2002, yet more than 90 percent of those gains had already occurred by 1982. The benefits of trade deals since that time have been marginal and are shrinking.

Indeed, the definitive study of NAFTA by members of the Federal Reserve, the National Bureau of Economic Research and Yale University found that the pact only led to a U.S. economic boost equal to a one-time 0.08 percent increase in GDP. Those small gains that did accrue from the agreement flowed to large firms and wealthy households. One study on the effects of NAFTA found that wage growth was dramatically lower for blue collar workers in vulnerable towns and counties in Georgia, North Carolina, South Carolina and Indiana, among other states. Another study found the hardest hit states in terms of jobs displaced as a share of total state employment were Michigan, Indiana, Kentucky and Ohio. U.S. communities were left with environmental damage, pollution and liabilities as factory towns were abandoned and NAFTA shifted pollution-intensive manufacturing to Mexico.  

Trump’s signature initiatives — the renegotiation of NAFTA and his trade war with China — have failed to produce good jobs and a healthy environment. The official U.S. government projection of the impact of the revised NAFTA (now called the US-Mexico-Canada Agreement or USMCA) projects a loss to the U.S. economy and fewer jobs. It is only by ascribing dubious value to the deregulatory features of the agreement that the official study can find even trivial benefits.

As we argue in our study, the trade war with China has led to higher costs for consumers and losses to farmers cut off from that key market. For manufacturing sectors, any positive effects from Trump’s tariffs were more than offset by the rising cost of inputs and negative effects from retaliatory tariffs imposed by trading partner countries who fight tit-for-tat when targeted. The only winners of the Trump trade policy? Big pharma, big finance and big tech. 

Even before the COVID-19 pandemic, former manufacturing centers of the Midwest were experiencing slower job growth under Trump than under the Obama administration. Total employment growth in Michigan during the three full years of his presidency (before the coronavirus pandemic) was by far the lowest in a decade. In Ohio, a survey of the state’s manufacturers in 2019 found that those who said they were negatively affected by the tariffs outnumbered those positively affected by nearly 9 to 1.  

In this time of crisis, the United States needs to fundamentally remake its trade policy to promote good jobs at living wages, tame inequality and protect the environment from pollution and the effects of climate change.

This new policy should be designed to support an economic recovery from the COVID-19 pandemic, one that is more equitable and resilient to future crises. It should shift bargaining power away from corporations and towards working people to create an economy that works for everyone, not just special interests. And it should be built to protect the environment from pollution and the effects of climate change.

Crucially, and in a clear departure from the Trump administration, this new policy should emphasize international cooperation — rather than antagonistic tariff wars — to lift up working families around the world, stabilize the global economy and provide a global order that protects public health and builds a green economy now and for future generations.  

Nothing less than the health and wealth of U.S. workers hangs in the balance. 

Sandra Polaski is senior research scholar at Boston University’s Global Development Policy Center and was former deputy director-general for Policy of the International Labour Organization and former U.S. deputy undersecretary of Labor.

Kevin P. Gallagher is professor and director of the Global Development Policy Center at Boston University’s Pardee School of Global Studies. Follow him on twitter @KevinPGallagher.