Understanding Globalism and the American Economy

Jun 5th, 2017 | By | Category: Featured Issues, Politics & Current Events

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As I have argued in previous editions of Issues in Perspective, one of the major debates occurring within the American political culture and which is also an aspect of international affairs is globalism vs. economic nationalism.  The appeal of economic nationalism over globalism explains the electoral victory of Donald Trump and, to some extent, the Brexit phenomenon.  But as with so many things, there is a need for balance and clear thinking in this debate.  For example, in a perceptive article in the Washington Post entitled, “Everything you need to know about trade economics, in 70 words,” George P. Shultz (former U.S. secretary of labor, treasury and state, and a distinguished fellow at the Hoover Institution) and Martin Feldstein (professor of economics at Harvard University and former chairman of the Council of Economic Advisers and president of the National Bureau of Economic Research) wrote:

If a country consumes more than it produces, it must import more than it exports. That’s not a rip-off; that’s arithmetic.

If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country.

Federal deficit spending, a massive and continuing act of dissaving, is the culprit. Control that spending and you will control trade deficits.

The simplicity of this “70-word primer” is why it is so profound:  The imbalance between imports and exports, the trade surplus with China and the US penchant for massive deficit spending are all interrelated.  There are no simple solutions to our trade deficit.  Attacking globalism per se is not the answer.  Making hard choices within the United States is the place to begin dealing with America’s economic problems—not attacking globalism alone.

Economist Robert Samuelson has written perceptively and convincingly about the effects of globalism on the United States.  For example, he draws on a recent report by the Peterson Institute for International Economics.  Allow me to summarize some of his salient points:

  • Trade has contributed to the rise of American living standards since World War II. The report estimates those gains at $2.1 trillion on an annual basis, which was about 11% of the $18.5 trillion economy in 2016.  “Put differently, slightly more than one-tenth of what we produce and consume comes from trade’s cumulative benefits.”  Imports are often cheaper than US products, which aids significantly lower-income households.  Foreign competition and technology often force US firms to lower costs and improve reliability.  Such competition has arguably made GM vehicles better because they compete with Toyota.  Exports create jobs and economies of scale for US firms.
  • Job loss caused by trade in a labor market of 160 million workers is modest. In recent years, for example, the US economy added about 200,000 jobs per month.  In contrast, the Peterson study estimates that from 2001 to 2016, imports displaced 312,500 jobs per year.  Job loss remains a challenge and the need to retrain and re-tool American workers is a fact, but trade is only a small part of overall job displacement.  “Other causes include automation, technological obsolescence and recessions.”
  • The benefits from expanded trade significantly outweigh the costs from job displacement—lost wages and prolonged unemployment. “Since 2003, benefits have exceeded costs by about 5-to-1, the [Peterson] study estimates.  The ratio is about 50-to-1 since World War II.  Large gains from trade liberalization—cutting tariffs and eliminating quotas—were easier to achieve in the first postwar decades, when protectionism was widespread.”

In short, the political culture of the United States puts economics and politics at a loggerhead; when what we need is clear thinking.  Globalism is a fact and cannot be rolled back!  Samuelson cites just a few examples of this fact:  Containerization, fiber-optic cables, air freight and the Internet.  A significant increase in protectionist policies (as advocated by President Trump for example) will be counterproductive and could actually reduce economic growth.  Trump’s interpretation of globalization shifts blame abroad:  “Foreigners—their exports, subsidies, exchange rates or whatever—are the villains.  We are the victims.”  This was Trump’s selling point and it got him elected.  But his simplicity in analyzing the dilemma will not solve the problems associated with globalism.  Utilizing material from The Economist, let me explain:

  • Trump argues that trade deficits are the gauge we must use to determine the unfairness of our trade deficit. But the reality is that the US trade deficit is better understood as the gap between how much Americans save and how much they invest.
  • Trump is obsessed with the effect of trade on manufacturing jobs, even though manufacturing employs only 8.5% of America’s workers and accounts for only 12% of GDP. Service industries do not even seem to register with Trump.
  • Technology, not trade, is ravaging American retailing, an industry that employs more people than manufacturing. Trump’s economic nationalism will speed automation, which will future reduce manufacturing jobs.
  • “Viewing the trade deficit as cheap borrowing exposes the tension at the heart of Trumponomics. If they are to do without the foreign capital they currently import, thus closing the trade deficit, Americans must save more.  Yet rather than squirreling away its money, Mr. Trump wants the private sector to go on a spending-and-investment spree, spurred on by deficit-financed tax cuts.” 

The Economist concludes that “The world economy has endless moving parts, many of which could conspire to make Trumponomics seem like a success or a failure.  But economic logic and past experience dictate that government deficits and investment booms drive trade deficits up.  Sooner or later, Mr. Trump must confront this fact.”

President Trump won the Electoral College because his brand of economic nationalism tapped into legitimate concerns and effects of globalism.  But the simplicity of his message ignores the complicated nature of the US economy and its trade deficit.  Making America into a victim of globalism while ignoring American complicity in this problem is not leadership and will not solve our economic problems.  President Trump must take the time to explain all of this to the American people and reasonably renegotiate some of the trade agreements (e.g., NAFTA) but not abandon the absolute necessity of international trade to the American economy.  He has his work cut out for him on this matter.  May he do so with wisdom and foresight.

See George P. Shultz and Martin Feldstein in the Washington Post (5 May 2017); Robert Samuelson in the Washington Post (14 May 2017); and The Economist (13 May 2017), pp. 9, 18-21. PRINT PDF

2 Comments to “Understanding Globalism and the American Economy”

  1. Peter Wiebe says:

    “The world economy has endless moving parts . . . which could conspire to make Trumponomics seem like a success or a failure . . . . Sooner or later, Mr. Trump must confront this fact.” Where does this take us? Is this a backhand way of showing that Trump’s efforts are not in-keeping with our desire for globalization, which will eventually be the way the world will go? As Christian leaders look at the shortfalls of Trump’s efforts, they often ignore some very significant elements. Globalism is not the grand answer to the world’s needs. The world needs God’s blessings and that seems to be absent from the discussion. Is Trump the answer for America’s needs? Definitely not. But, I do believe that God is using Trump to slow down this speeding towards One World Government, One World Religion, One World Currency and move toward a society that forbids any display of Christian morality and Christian beliefs. Why do we never touch upon Hillary’s conversation where she says that Christians must kneel down and give up the Christian beliefs and yield to society’s progressive movement? Trump has indicated that as long as he is president Christians will be able to practice Christianity. The movement toward Christian pastors having to submit a copy of their sermons, is something Trump’s administration will NOT promote. For those that are so enthused about, and supportive of globalism, maybe take a look down the road and see how your ability to live and practice your Christian beliefs will be affected. I do believe that any creditable look at why Trump won the election should take a serious look at maybe God wanted Trump to win to give North Americans a little more time to avail themselves of His blessings. And, if that is the case, then maybe, just maybe, we are fortunate Trump won, regardless how we mortals try to disparage what is happening. It just may be that God is blessing us by giving us a little more time while we think we know better and analyse all the negatives, at least what we perceive as negatives. For all the hatred towards Trump, and all this display of hatred does not come from God, it comes from Satin, we might want to be less condemning of Trump and take a serious look at whether we are getting a reprieve from a loving God Who is using Trump. For all you Trump haters, let me assure you, Hillary Clinton and her Progressive ideas are NOT the answer. We need to pray to God that He may grant us wisdom to better understand what He wants us to do.

  2. Arlie Rauch says:

    There are reasons beyond economics to oppose globalism. Many Christians who oppose globalism do so without a thought of economics. They are opposing globalism because it will produce the arch enemy of Christ on earth (who will incidentally control individual economics totally). There are evangelistic reasons and maybe others for delaying the arrival of the antichrist. On the other hand, globalism full blown also tells us the rapture of the Church is nearby. So, pray for our leaders. Let them lead, and see what God will do. In the meantime, we have godly lives to live so the world can see Christ in us, regardless our politics.

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