Free Trade exerts big effect on ‘earned success’
Amid all the hurly-burly of President Donald Trump’s first weeks in office, let’s try to put the changes he’s making and the feathers he’s ruffling in a longer, 20-year perspective. Start off with his trademark issue — one that clearly helped him win the 64 crucial electoral votes of Pennsylvania, Ohio, Michigan and Wisconsin: trade.
Twenty years ago, Bill Clinton’s administration was busy negotiating with China for normal trade relations. China’s economy was growing rapidly. Its manufactures were inexpensive. And American firms looked with relish on a market of 1 billion customers with fast-growing incomes.
Clinton’s approach, supported by leading Republicans, was based on a lesson that every college student learns in Economics 101, whether taught by a Keynesian or a Milton Friedman fan. Free trade benefits both sides, with lower prices and increased economic growth.
Clinton hustled to push “permanent normal trade relations” with China through Congress in the election year of 2000. There was broad support in the Senate, and the House passed an amendment establishing a commission to monitor China’s human rights practices. It passed by a 237-197 margin, with 164 Republicans and 73 Democrats voting yes.
Freer trade with China has benefited Americans in many ways. Your smartphone would cost a lot more without those components manufactured in China. The Department of Agriculture reports that it’s cheaper, in real dollars, to buy clothing and toys for children than it was in the 1970s. Members of the elite who doubt this should visit a Wal-Mart or one of its competitors.
But there have been downsides, too. China’s huge and rapid economic surge is a phenomenon never seen before in history and likely never to be seen again. It would be surprising if its impact were not immediately apparent or entirely beneficial. A 2011 study co-conducted by MIT economist David Autor found, in the words of The Wall Street Journal, that in the United States, “regions most exposed to China tended not only to lose more manufacturing jobs, but also to see overall employment decline. Areas with higher exposure also had larger increases in workers receiving unemployment insurance, food stamps and disability payments.”
These effects may have been exacerbated by Obama-era legislation and regulations, which slowed growth generally. Autor and his colleagues noted last year that in areas most affected, adjustment has been slow, “with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated.” And “offsetting employment gains in other industries have yet to materialize.”
Someone at 725 Fifth Ave. noticed, and the effects are also apparent to reporters who bother to travel to counties where Trump ran well in the election. We’re seeing men who are permanently without jobs and living off disability payments, rising death rates among middle-aged whites, and widespread opioid addiction. That has prompted at least one reporter who is no Trump fan, Time’s Joe Klein, to ask: “Is the self-esteem inherent in manufacturing jobs long considered obsolete — think of those grand old steel mills — more important than the lower prices that the global market provides? Have we tilted too far toward market efficiency and too far away from social cohesion?”
In addressing those questions, it’s helpful to look back on one of the policy successes of the 1990s: welfare reform. Pioneered mainly by Republicans but also by some Democrats, pushed through Congress three times by Republicans and, after two vetoes, signed by Clinton in 1996, it limited welfare grants and required — and helped — welfare mothers to get jobs.
Most research has shown positive results. Former welfare recipients reported a sense of pride and accomplishment, and many advanced up the economic ladder. They felt they set a good example for their children, and it’s probably no coincidence that their children committed many fewer crimes than their counterparts a generation before.
Arthur Brooks, president of the American Enterprise Institute (where I’m a resident fellow), has argued that the best ingredient for happiness and contentment is a sense of “earned success.” It can be earned by raising a family, helping neighbors, contributing to charity and — critical here — working at a job.
Welfare reform enabled many women to get a sense of earned success by working at a job. Globalized free trade, though having many good effects, seems to have prevented many men from getting a sense of earned success by depriving them of jobs.
All of this suggests that the gross domestic product is not the only metric to evaluate President Trump’s trade policies and that the answers to Joe Klein’s questions aren’t so clear as they have seemed to those of us who took Economics 101.