Not Everything Trump Says on Trade is Wrong: Countries Don't Always Benefit from More Trade

Dean Baker

Dean Baker Co-Director, Author, Center for Economic and Policy Research

Donald Trump's tendency to make things up as he goes along naturally prompts a strong reaction from people who try to approach issues in a serious way. But serious people can sometimes get carried away in this reaction.

Glenn Kessler, the Washington Post's fact checker, got a bit carried away in trying to set readers straight on Trump's bizarre claim we have a $100 billion trade deficit with Canada. (We do have a trade deficit, but it is closer to $20 billion.) In his Fact Check piece, Kessler asserts:

"If overall trade increases between nations, people in each country gain, no matter the size of the trade deficit."

This is not necessarily true. Let me go through two cases, one in which the countries are below full employment and one in which they are at full employment.

Suppose in the first case one country, let's say Denmark, decided to subsidize $100 billion of exported cars to the United States, displacing $100 billion of domestic production. The immediate effect of the increased imports from Denmark is a loss of output and employment in the United States.

In principle, the Danes have another $100 billion to buy goods and services from the United States, but suppose they don't like anything we sell. In the textbook story, they would dump their $100 billion on world currency markets, driving down the value of the dollar. This would make US goods and services relatively cheaper, thereby causing us to export more and import less, possibly fully offsetting the $100 billion in increased imports.

But suppose the evil Danish central bank used these dollars to buy up US government bonds, as many countries have done over the last two decades. This would keep the dollar from falling. The purchase of US bonds would have some effect in lowering US interest rates, but this would be just like the Fed's quantitative easing policy. The lower interest rates would boost demand, but not nearly enough to offset the $100 billion increase in our trade deficit.

So, in this below full employment story we end up with a situation where trade has increased by $100 billion, but the US is left with lower employment and output. It sure looks like it has been hurt by more trade.

Now let's take a full employment story. Suppose to get even with Trump for calling him weak, Justin Trudeau decides to open his doors to US medical patients. Taking advantage of the lower fees paid to physicians in Canada, he offers major surgeries for half of the price that is charged in the US. He also arranges a service whereby MRIs and other scans can be quickly read by Canadian radiologists for less than half the price charged in the US. 

This is a case where most people in the United States will clearly be winners since they will get lower cost health care. However, US doctors will be big losers, since they will see their wages depressed as the demand for physicians in the United States plummets.

In this story, we could certainly say that the country as a whole gained and there were large numbers of winners, but the doctors would be correct in arguing that they were big losers. Now, we could restructure the picture to have Trudeau subsidizing the export of manufactured goods to the US, displacing large numbers of manufacturing workers.

This would drive down the pay of manufacturing workers, and because manufacturing is a source of relatively well-paying employment for less-educated workers, this could mean that non-college educated workers more generally are losers. This argument has been drawn out more carefully by Paul Krugman and Josh Bivens. In this case, most of the workforce would end up as losers, even if the country as a whole may still gain since the minority of winners benefit more than the losers lose.

So here are two clear stories where more trade does not necessarily imply that the country gains. (There are also issues about trade possibly foreclosing the development of specific industries, but we'll leave that one out for now.) This doesn't imply that Trump has a remotely coherent strategy in his battles with our trading partners or that we are likely to end up better off as a result, but there are some legitimate issues with our patterns of trade even if Trump may have no idea what they are.

***

Reposted from CEPR

Dean Baker is author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy,” PoliPoint Press, LLC. This piece was first published on the Center for Economic and Policy Research’s Jobs Byte. CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102 or chinku@CEPR.net.

Posted In: Allied Approaches, From CEPR Co-Director Dean Baker

Union Matters

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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There is Dignity in All Work

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