DEMAND IS KING: What Trump Has Right About Trade

July 2, 2018

Trump understands what establishment policymakers don’t know or don’t want you to know. When it comes to trade; nations rich with consumer demand hold the real leverage.

A broad-based middle-class prosperity is only possible in societies where demand is balanced with the supplied labor. In human history, this balance between demand and the labor supply is only being achieved in a few nations and for short spans of time. Despite our deep-seated belief, that America has always been and always will be a middle-class society. A broad-based middle-class has only existed in the US for the three Decades after World War II.

The notion of a broad-based middle-class prosperity is the exception, not the rule, and many Americans feel it slipping away Their concern is justified because nothing can throw the delicate balance between consumer demand and labor supply out of whack faster than international trade. The world is awash with potential labor yet there is a finite supply of consumer demand.

President Obama has said that income inequality is the biggest issue facing our nation. He is right.  Even as the reason he puts forward for the causes of income inequality are muddled and that he seems to accept the notion that income inequality is caused by global market forces beyond the control of policymakers. Free trade is not inevitable, it is a conscious policy decision that has a real impact on working families.

Obama’s insistence on pursuing the TPP trade deal in the run-up to the 2016 election speaks volumes about his misreading of the electorate and his misunderstanding of the fundamental causes of income inequality. Despite promises from candidate Obama, the Obama administration never intended to renegotiate NAFTA.

There is no light between Obama, Hillary Clinton, the House, and Senate leadership of the Democratic Party and establishment Republicans on trade.  This is one reason Hillary Clinton lost the election. The genius of Donald Trump in the 2016 election was his understanding that the sense of angst in the Midwest great lakes electorate was in large part about how the US, a developed prosperous nation can integrate its economy with a world awash with excess labor.

The answer is that you can not integrate the economies of a rich nation with an impoverished developing nation without massive transfers of wealth. Any free trade agreement between the US and, say, Vietnam will devolve into wage arbitrage. But it’s not only wages; Vietnam businesses have a host of price advantages. The US private sector supports all matter of government and private spending. The US military and health care spending alone put US producers at a huge disadvantage with developing-nation trading partners. Even a service as basic as indoor plumbing has a cost that is passed along in the products we produce, so the question becomes how do you compete with countries that don’t provide even the most basic private and governmental services?

The US and a few other countries have something that is absent in the developing world, it is the very reason why they are impoverished.  We have consumer demand. Successful Nations of the future will find ways to match demand with a population desperate for gainful employment even if that means siphoning off demand by being low-cost producers from consumer nations. The idea that the United States or any developed nation can allow huge chunks of consumer demand to be absorbed by developing nations and maintain a current level of their own prosperity is a con job. As powerful as the American consumer is, we can’t be the employer to the world – the numbers just don’t work. Free trade does not grow the world economy fast enough to maintain the value of labor.

Denying access to imports is not the answer. The real issue is not how much a nation trades, it is the balance of trade that determines the transfer of wealth. A trade policy without reciprocity will continue to drain our economy of its vitality.

“Free Traders” insist that trade deficits are not a problem. So how do you explain the rise of China? China’s double-digit growth rate, budget surplus even as it expands it’s government (military) spending. China’s go-go economy is a direct result of a positive balance of trade. Trade does grow the world economy but not enough to make up the transfer of wealth from the US into China.

Proponents of free trade put forward the figure that in 2015, 5,967 jobs were linked to every billion dollars of exports. But wouldn’t the inverse also be true? For every billion dollars worth of imports, a similar amount of US jobs are lost.  What’s critical in this discussion that “Free Traders” never address is what is the net effect of our trade policies on the maintenance of wages and jobs growth in the US? There’s also no discussion of the devastating effects on workers incomes when companies use the potential to offshore jobs as leverage in labor negotiations.

Is a lot of money to be made by sourcing goods in low-cost, weak currency nations and selling them into developed nations with a higher standard of living and stronger currencies?  But do not blame China, they do not have the power to dictate US trade policy. Despite the fear-mongering about trade wars and China owning our T-bills, we have a donor-class trade policy set up to benefit multinational corporations. All the elitist rhetoric you will hear as President Trump tries to address the imbalance the US/world trading is designed to maintain the status quo.

Countries that understand consumer demand and jobs is a feedback loop that creates prosperity will be successful in the 21st century. If the US allows it’s consumer demand to be drained off for the short term benefit of multinational corporations in unsustainable trading relationships we will struggle to maintain a middle class and fail to have a stronger private economy with the resource to support their own infrastructure and institutions.

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It is the Labor Market Stupid

January 5, 2014

Why Democrats will not address the real cause of income inequality.

I am hopeful that the public and our political class are coming to terms with income inequality in America and the harm it is doing to our economy and society.  At the same time, I am disappointed in the response by my party, the Democratic Party, to the overreaching economic issues of our time.

While raising the minimum wage would do more good than harm, simply raising the minimum wage would help too few people, too little, and could create inequities of its own.  More importantly, the minimum wage is a placebo, a distraction from the real labor market forces at work that is bringing the idea of America as a broad-based middle class national, to a close.

Our government over the last 30 years has pursued policies by way of trade agreements, cheap foreign labor embedded in the goods imported to the US and an immigration policy of non-enforcement to increase the supply of labor in the United States.  Globalization has been an abject failure for the American middle class.  When President Clinton supported NAFTA he sold out to a corporate establishment and took the Democratic Party’s labor market policy 180 degrees in the wrong direction.

Increasing the supply of labor into the US market has had a predictable, and for some, the desired result.  While corporate profits are at record highs the value of labor in the market has been diminished to the point where a full-time job no longer provides a place in the middle class.

For a party that holds the moral high ground on so many important issues, it sickens me to see Democrats pandering to foreign nationals who have intentionally broken our immigration law in order to gain an electoral advantage, and to a corporate establishment that is willing to put short-term profits above the economic interest of their employees and their own customers.

It is my wish that the Democratic Party will set aside the interest of foreign nationals and big campaign contributors and return to their core values of supporting a strong and prosperous middle-class.

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