American workers and globalization

A few weeks into his transition, United States President-elect Donald Trump has moved to fill various White House and Cabinet posts. But he has also found time for many calls to the chief executives of United States multinational companies, warning them not to move any production or jobs to Mexico. Donald Trump tweeted first on November 18 that he “got a call from my friend Bill Ford, Chairman of Ford, who advised me that he will be keeping the Lincoln plant in Kentucky, not Mexico.”

Bill Ford had not actually been planning to move its Lincoln plant to Mexico, but the point was made nonetheless. The same day, news stories appeared in different media outlets saying that Apple, the largest United States company by market capitalization, had asked Foxconn, the Taiwanese company that assembles iPhones in China, to look at moving some of those assembly jobs to the United States.

Then came the announcement that Donald Trump’s incoming Vice President, the outgoing Governor of Indiana, had offered extensive tax breaks to furnace manufacturer Carrier to keep some of its jobs in Indiana instead of moving all of them to Mexico, something the President-elect had vowed during the campaign to stop. It is indeed a new day in United States trade relations with the world. A nation that has long seen trade as a “win-win” which is good for American companies, good for Americans, good for the world, is now asking a different question: what’s in it for us?

What happened? Richard Phillips, an American financial economic analyst stated that it is not as if the United States economy has lagged. Since the low point of the Great Recession that in the United

States was reached in 2010, the country has created more than 14 million jobs. That far surpasses the performance of any other advanced economy. Unemployment has now fallen to below 5% and the United States economy grew by a healthy 2.9% in the last quarter.

Edward Alden, the Bernard L. Schwartz senior fellow at the Council on Foreign Relations, noted that yet, Americans chose Donald Trump to lead them, a presidential candidate who had called the United States economy “a complete disaster.” Donald Trump has promised to restore American “greatness” through long discredited policies such as trade protectionism and tough restrictions on immigration, which could quickly pull the rug out from under the longest period of sustained job growth in United States history.

What went wrong? Edward Alden in his very recent book entitled “Failure to Adjust: How Americans Got Left Behind in the Global Economy” argued that the “Great Political Tsunami of 2016” was the most predictable storm in decades. He noted that the United States has been through a long period in which technology and global competition decimated the manufacturing jobs that sustained many communities across the country. During the campaign, Donald Trump denounced “this wave of globalization that has wiped out our middle class.”

The anger generated in those communities has now found voice in a man who promises, without any plausible way to deliver, that “we can turn it around fast.” In decades past, many United States manufacturing jobs paid modestly-educated workers far higher salaries than they could have earned otherwise. That great post-war “deal” which owed much to the damage that had been done to most other major economies around the globe whether through war, central planning or sheer incompetence, has long been gone.

But the transition to a more competitive global economy was poorly managed, most particularly during the decade of the 2000s when roughly a third of United States manufacturing jobs disappeared due to a combination of new technologies, two recessions and growing import competition, especially from China. And unlike their counterparts in Europe whose economies have mostly under-performed the United States, United States workers have had little or no help from the government.

Owing to a considerably different social contract that prevails in the United States, they were largely left alone with adjusting to the loss of work and the decline in wages. According to Edward Alden, the anger generated by these economic upheavals should not have been surprising to anyone; the writing has been on the cards for a long time.

With the rise of the German and Japanese export machines, and more competitors clearly on the horizon, Richard Phillips, an American financial economic analyst, stated that new import competition poses adjustment policy problems which simply cannot be ignored. The failure to help Americans adapt to this new reality, through worker retraining, aid to hard-hit communities, and even restraining import competition temporarily to allow for adjustment, would leave long periods when the transition is painful beyond endurance.

Yet, successive United States government ignored that warning. According to Richard Phillips, they also overlooked the conclusions of the world’s leading economists who argued that, while trade would create far more winners than losers, the losses were real and would need to be addressed. Consider the issue of retraining workers for new jobs or new careers.

Richard Phillips further noted that the United States Trade Adjustment Assistance (TAA) program, which was supposed to help displaced workers, was created at the initiative of President John F. Kennedy in 1962. That is now over a half century ago. But that promise was never delivered. In the first six years of the program, while 25 petitions were filed covering thousands of workers, not a single one was approved by the United States government.

Today, while TAA is a somewhat more robust program, United States spending on “active labor market” programs designed to help workers move from one career to another is a tiny fraction of what European governments spend. Indeed, in the 34-member OECD, only Mexico and Chile spend less money as a share of their GDP on retraining than does the United States. As Jean-Francois Boittin, a former French diplomat and Treasury official noted, this is not because there wasn’t sufficient congressional attention given to the issue. In fact, over the past several decades, whenever a new trade agreement was on the horizon in the United States Congress, legislators dutifully promised to “finally” and “at long last” pay real attention to the issue of trade-adjustment measures.

To be continued..