Boy, Do My Feet Hurt
By William Reinsch
The past few months I have spent most of my time in this column criticizing the Trump administration for various things it has done or said — and occasionally complimented it for not doing some of the things it said. Fair play, however, requires looking at Democratic policies as well and, like the Republicans, they have provided a target-rich environment.
The latest entry into the protectionist sweepstakes is “A Better Deal on Trade and Jobs,” which the Democrats released on August 2. Both its proposals and the accompanying rhetoric demonstrate a clear effort to “out-Trump” Trump. I’ll get to the politics of that later, but in terms of economic effects their approach is a bit like saying, “You shot yourself in the foot? I can do better than that. I’ll shoot myself in both feet!”
While each of the seven pieces has its issues, addressed below, most depressing is the underlying concept: globalization is bad, and we’re going to reverse it. We’re going to pressure companies to move back to the U.S., and we’re going to make it harder for foreigners to do business here. I’ve always thought the most prescient comment on globalization was one Bill Clinton made more than 20 years ago when he said, in essence, it’s not good; it’s not bad; it’s here, and we better learn how to deal with it. Opinion polls in subsequent years suggest that the public, particularly my generation, does not necessarily like it but recognizes that it is, indeed, here and is not going to go away. Millennials, who have grown up in an economically integrated world, take it for granted and don’t pay much attention, but the Democratic paper wants to walk it back, which gives false hope to those that share that view and ignores the harm it will do to the very jobs and growth we all want to see.
To make that point more clearly, let’s take a quick look at the specifics. The first proposal is an independent trade prosecutor. This was something Hillary Clinton floated in her campaign, and while it didn’t raise many eyebrows at the time, it seems now to be overkill when we have an administration that is determined to prosecute everybody for everything, at least on trade.
The second proposal is a council of independent economic experts empowered to block investments if they concluded they would have a detrimental economic impact. My main objection is constitutional — it gives private parties authority to make decisions that belong to the government. The right way to do this, if one wants to do it, is to expand the scope of CFIUS reviews, not create a parallel structure.
The third proposal recycles previous proposals for improving NAFTA, including more transparency, enforceable labor and environment standards, and better market access. Good ideas if we can get them.
The fourth proposal advocates penalties for federal contractors that outsource jobs, including “naming and shaming” such companies. A mindless proposal that ignores market realities, pays no attention to why the jobs went offshore in the first place, and doesn’t consider whether there are people here willing and able to fill them if they did come back.
The fifth proposal would impose Buy America requirements on all U.S. taxpayer-funded programs. The obvious criticism is that it would increase the cost of those projects, even though the American people have demonstrated over the years that while they support Buy America, they don’t want to pay more to get it. More important, it ignores our multilateral obligations in the Government Procurement Agreement and the retaliation we would experience in foreign markets if we did it.
The sixth proposal is also a retread — make currency manipulation a subsidy subject to our countervailing duty laws. While currency manipulation has been a genuine problem in the past, it is hard to find a major economy practicing it right now, except for China where government intervention has propped up the RMB not driven it lower. In addition, the overwhelming weight of legal opinion is that this would violate our WTO obligations.
The last proposal would use the tax code to punish companies that move jobs overseas and reward them if they bring them back. It’s a fair point that our current tax laws encourage offshoring, but the better answer is to remove the incentives to do that rather than a broad brush that attacks all cases regardless of the cause. Many companies move capabilities offshore in order to maintain or improve market access, something we should not discourage in a world where 96% of consumers are outside our own country.
Aside from the economic merits, or lack thereof, I think these proposals will misfire politically. First, for better or worse, Trump owns protectionism, and “me too” will be perceived as pandering and is not likely to be very persuasive with voters. Second, Pew Research Center data have shown consistent Democratic support for trade and trade agreements while Republicans have flip-flopped. This package keeps the unions happy, but I’m not sure about the rest of the party. Third, those voters defected last year for a lot of reasons beyond trade, and they won’t come back just because the Democrats sound like Trump on trade. It might make more sense to look at lower hanging fruit — moderate, largely suburban Republicans appalled by Trump. They are not anti-trade. Finally, the party should look to the future not the past. Blue collar white voters are declining while millennials and Gen Xers are taking over. They are much more pro-trade than their elders.
Protectionism may have helped Trump in 2016, but it clearly didn’t help Democrats, who offered the same “me too, but we’re smarter” approach as last week’s document. As my old colleague Paul Freedenberg used to say, even worse than shooting oneself in the foot is reloading and firing again.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.