Trade Increases Economic Growth – by Jerry Jasinowski
Presidential candidate Donald Trump had much to say about foreign trade, most of it negative, and as President he quickly pulled the rug out from under the proposed Trans-Pacific Trade Partnership. That was an unwise decision but in retrospect it may have been redundant. Support in Congress for that trade deal was marginal at best. Trump’s aversion to trade deals evoked a strong reaction among voters who believe with some justification that we have been victimized by unfair trade practices.
The good news is that Trump’s promise to jettison the North American Free Trade Agreement (NAFTA), like many of his promises, appears to be going by the wayside. He now has serious business people advising him of the importance of trade to our economy, beginning with NAFTA. It seems likely there will be some renegotiation of NAFTA which is fine with Canada and Mexico. But the pact will remain in force, which is a blessing.
President Trump is beginning to realize belatedly that much of what he believes about trade – and much of what the American people believe – is either wrong or out of date. For example, Trump came to office promising to brand China a currency manipulator. There were many years when our refusal to do that was simply ludicrous, but the situation has changed. Today China is actually spending its cash reserves to prop up its currency, the yuan. Currency manipulation is no longer an issue.
To be sure, China continues to engage in unfair trade practices – such as favoring domestic industries with subsidies and discriminating against imports from the U.S. Trump will no doubt take a tough stand on these issues and appropriately so. It is hinting it may invoke Section 232 of the Trade Expansion Act of 1962 that could lead to tariffs on imported steel.
But President Trump and the American people need to get it into their heads that for better or worse our fortunes depend on trade. The U.S. is the world’s richest consumer economy by far, but we must remember that only 5 percent of the world’s people live here and the vast potential for growth lies overseas. Growth is the weak link in our economic engine and we need to pay serious attention to it. We continue to chug along at about 2.0 percent and for that we should be grateful to the new generations of immigrants who come here in pursuit of their dreams and ambitions. Our growth is historically weak but it would be much weaker without immigration.
We must actively promote exports like never before and we absolutely must do everything in our power to gain greater access to the China market. The sheer vastness of the Chinese market dwarfs our own or any other. There are 1.3 billion people there working their way out of poverty – a growing consumer market like no other, like our own in the post-World War II years only much larger.
Like many economists I fret about the lack of strong gains in productivity, but it is clearly overall economic growth that is the major challenge and that depends to a large extent on international commerce. I am cautiously optimistic that the Trump Administration is coming around on expanding trade and that we can preserve its contribution to economic growth.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. April 2017