Technology & Trade

Who’s Sorry Now?

in Program

By William Reinsch

In a way, this column is too early because it’s talking about things that haven’t happened yet. But I can’t resist setting up an opportunity later on to use my four favorite words: “I told you so.” (People in the commenting business live for those moments — the chance to remind everyone that you were right about something). 

So, let’s dig in. The topic, once again, is irony — in this case the irony of President Trump’s supporters becoming the biggest victims of his policies. Much has been written in the past two weeks about that with respect to the late but not particularly lamented Republican health care bill and the president’s proposed budget, but in keeping with my focus on international economics, I’m going to look at that part of the economy, specifically the part he talks about to the exclusion of almost everything else —coal, steel, and autos. Let me begin with a story.

When I worked on Capitol Hill for Senators Heinz and Rockefeller from 1977 to 1993, I spent an enormous amount of time trying to save the domestic steel industry, which at the time created a lot of jobs and wealth in Pennsylvania and West Virginia, and which — also at the time — was going through several of its many crises. Over the 17 years I worked for them, we tried a lot of things — changes in trade law to produce more favorable outcomes, domestic procurement (Buy America) policies, loan guarantees, favorable tax policies, and so on. Some of them worked — for a while — and I think overall we saved jobs and a number of companies; yet today the industry produces roughly two-thirds of the steel it produced at its peak in 1973 but with only one-fifth the workers, and it faces the same unfair trading pressures it faced then. 

In other words, while we were providing what were essentially short term “micro” remedies, there were broader structural changes underway in the economy that effectively offset what we were trying to accomplish, the main one being technology-based productivity improvements. Does that mean we should not have done what we did? Not at all, but it does mean we should not have fooled ourselves, and the workers, into thinking these were permanent solutions.  

You can make similar points about coal and autos, though the facts in each are different. Coal does not have trade problems in the same way but is a victim of basic economics — competition from increased supplies of oil and gas at lower prices as well as growing demand for renewables and other clean technologies, not to mention continuing automation which drives job reductions. After peaking in the 2005-10 period, production is now down to a bit more than what it was in 1985, while jobs are only slightly more than 1/3 of what they were in 1985, as the core of the industry shifts from deep mining in Appalachia to strip mining in the West. Automobiles both then and now have had trade problems, both imports into the U.S. and market access barriers to our exports — but they have also suffered from a high dollar (which will only get higher if a border adjustment tax is imposed) and technology change that leads to productivity improvements and loss of jobs.    

In other words, all three industries are victims of larger macroeconomic trends that ultimately frustrate short-term policy initiatives. The same was true of our apparel industry even earlier. That does not mean short-term policy measures don’t work in the short-term; they might or might not. But it does suggest that such measures will not arrest the long-term decline in jobs. (Note that I said jobs, not production. The problem these industries have in common is continued technological change that will improve productivity at the cost of jobs). These are important industries, and they are not going to go away, but the most likely forecast is that four years from now there will be fewer workers in all of them regardless of what the president does.  

That is not good news for the workers, but it is also a cautionary note to policymakers — don’t spend all your time and money trying to keep things exactly as they have been by propping up sectors whose glory days have passed them by. Instead, workers should think about career alternatives, and policymakers should focus on how to ease those transitions and on developing new industries to soak up the workers leaving the old ones. At the same time, it is fine to try to slow down the transition, particularly when unfair trade practices are part of the problem, as long as we don’t delude ourselves or the workers into thinking that is all we need to do. 

William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.
Photo credit: Micolo via Flickr
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