Home > Uncategorized > China did not trick the US — Trade negotiators served corporate interests

China did not trick the US — Trade negotiators served corporate interests

from Dean Baker

The New York Times ran an article last week with a headline saying that the 2020 Democratic presidential contenders faced a serious problem: “how to be tougher on trade than Trump.” Serious readers might have struggled with the idea of getting “tough on trade.” After all, trade is a tool, like a screwdriver. Is it possible to get tough on a screwdriver?

While the Times’s headline may be especially egregious, it is characteristic of trade coverage which takes an almost entirely Trumpian view of the topic. The media portray the issue of some countries, most obviously China, benefiting at the expense of the United States. Nothing could be more completely at odds with reality.

China has a huge trade surplus with the United States, about $420 billion (2.1 percent of GDP) as of 2018. However, this doesn’t mean that China is winning at the expense of the United States and because of “stupid” trade negotiators, as Trump puts it.

The U.S. trade deficit with China was not an accident. Both Republican and Democratic administrations signed trade deals that made it easy to manufacture goods in China and other countries, and then export them back to the United States.

In many cases, this meant that large U.S. corporations, like General Electric and Boeing, outsourced parts of their operations to China to take advantage of low-cost labor there. In other cases, retailers like Walmart set up low-cost supply chains so that they could undercut their competitors in the U.S. market.

General Electric, Boeing, Walmart and the rest did not lose from our trade deficit with China. In fact, the trade deficit was the result of their efforts to increase their profits. They have little reason to be unhappy with the trade deals negotiated over the last three decades.

It is a very different story for workers in the United States. As a result of the exploding trade deficit, we lost 3.4 million manufacturing jobs between 2000 and 2007, 20 percent of the workers in the sector. This is before the collapse of the housing bubble led to the Great Recession. We lost 40 percent of all unionized jobs in manufacturing.

This job loss not only reduced the pay of manufacturing workers, but as these displaced workers flooded into other sectors, it put downward pressure on the pay of less-educated workers generally. This is a pretty awful story, but it is not a story of China tricking our so-called stupid negotiators; it is a story of smart negotiators who served well the interest of corporations.

For some reason, the media always accept the Trumpian narrative that the large trade deficits the U.S. runs with China (and most of the rest of the world) were the result of other countries outsmarting our negotiators, or at least an accidental result of past trade deals. The media never say that large trade deficits were a predictable outcome of a trade policy designed to serve the wealthy.

The fact that trade is a story of winners and losers within countries, rather than between countries, is especially important now that our trade conflicts are entering a new phase, especially with China. While not generally endorsing Trump’s reality TV show tactics, most reporting has taken the position that “we” in the U.S. have genuine grounds for complaint with China.

The complaints don’t center on the under-valuation of China’s currency, which is a problem for manufacturing workers. Rather, the issue that takes center stage is the supposed theft by China of our intellectual property.

While this sort of claim is routinely asserted, the overwhelming majority of people in the United States have never had any intellectual property stolen by China. It is companies like Boeing, GE, Pfizer and Merck that are upset about China not respecting their patent and copyright claims, and they want the rest of us to have a trade war to defend them.

If the goals of trade policies were put to a vote, these companies would be hugely outnumbered. However, they can count on the strong support of the media in both the opinion pages, and more importantly, the news pages. The issue is entirely framed in their favor, and dissenting voices are as likely to be heard as in the People’s Republic of China.

There is a lot at stake in preserving the myth that ordinary workers were hurt as just an accidental byproduct of globalization. The story is that it just happens to be the case that hundreds of millions of people in the developing world are willing to do the same work as our manufacturing workers for a lot less money.

Yes, the loss of millions of manufacturing jobs is a sad story, but is just part of the picture. There are also millions of smart ambitious people in the developing world who are willing to do the same work as our doctors, dentists, lawyers and other professions for a lot less money.

But the people who design trade policy have made sure that these people don’t have the opportunity to put the same downward pressure on our most highly paid workers, as did their counterparts working in families. And, for what it’s worth, the trade model works the same when we’re talking about doctors as manufacturing workers. Less pay for U.S. doctors means lower cost health care, just as lower pay for textile workers means cheaper clothes.

The key point is that winners in the global economy, along with the big corporations, got their good fortune because they rigged the process, not because of anything inherent in the nature of globalization. (This is the point of my book Rigged: How the Rules of Globalization and the Modern Economy Were Structured to Make the Rich Richer.)

See article on original site

  1. Meta Capitalism
    August 24, 2019 at 2:10 am

    I personally hope Trump continues his stupidity and escalates this trade war, for it dooms his re-election, and that is America’s only hope that this wicked demagogue doesn’t get re-elected.

  2. August 24, 2019 at 5:06 pm

    Good enough as far as one accepts Dean’s categories of analysis, but Dean, can we really separate the idea of “Globalization” from the players who dominate the process, which you have rightly names: major American corporations. Labor and environmentalists have not had anything close to a fair seat at the table, in numbers or proximity to the inner decision making tables. Blue collar workers are unhappy in the West, in Europe and the United States, and they have lost status in the Democratic Party which as Thomas Frank has exhaustively shown, has become the home of the college educated professional more concerned with gender and racial issues than the political economy, a point made also by philosopher Nancy Fraser. Isn’t it ironic Dean as you stress – or is it hope – that the concept of globalization is neutral, just a wider venue – and hey, when is that statue to Bill Clinton from the Chinese peasants turned industrial workers going to go up, and where? – than in Montgomery County Maryland, the “ideal type” of “progressive” modern modern democratic politics, the scope of actual change has shrunk, not expanded during this new modern era of globalization – they’re stuck in traffic on the Beltway and I-70 and 270 but they can’t find a way to fund getting people out of cars into rail, and even the most progressive of County Executives, Mark Elrich substituted a “high speed” bus line for more rail, and even that was scaled back: no money. So Republican Governor Larry Hogan steps in with a multi-billion dollar PPP proposal – all auto centric. And this is one of the richest counties in one of the richest states in the USA.

    And contrast that with the Chinese massive international infrastructure program, equaling if not surpassing the pyramids, the Great Wall of China and Rome’s famous road network, combined? As China’s ambitions and physical constructions balloon, in the West, the private powers, and I do stress private, have saddled the Western populace with Neoliberal austerity: we can’t afford it unless we turn it over to the private sector.

    How do you separate out that from Globalization as we’ve known it? Only the large scale international institutions in Yanis Varoufakis’ books could allow you, Dean, to keep the notion that it’s not “globalization” it’s the context that’s all wrong. The context, the values, the power distribution, and the erosion of democracy all seem part “of the deal” to me, and that’s not the Green New Deal gone global, it’s the old, scary “here’s the deal” handed to us by the likes of Joe Biden.

    And Dean, sorry if I’ve missed it, have you ever written about the three memos written by the bankers at Citigroup in 2005-2006, and which their lawyers have tried to suppress, which appear in the appendices of Edward Fullbrook’s new book about the metrics of “Market Value?” Another thing to sort out, process and outcomes under globalization: in Citigroup’s view, it’s capitalism vs democracy, and the plutocrats have to control the process. And I don’t recall those Citigroup memos coming up even when Hillary Clinton’s private speeches to the bankers were front and center…

    I guess you can keep your ideal of nothing wrong with “globalization” – as the conservative religious qualify used to go – “rightly understood” but there has sure been a lot of ugly consequences for other values we cherish under the term.

    • charlie thomas
      August 25, 2019 at 11:57 pm

      thanks Gracchi Bros … I remember you guys from high school latin circa 1957. As I recall did not turn out well …
      hope you keep posting the truth
      one ecologist in a room full of economists

  3. Ken Zimmerman
    August 26, 2019 at 1:14 am

    The lobbyists and “smart guys” who create these “trade” deals and shepherd them into existence tell a simple story to politicians. “I can make you rich and help you get reelected. Just vote for my deal.” It’s not a difficult convincing job, since most of the politicians have spent their careers making such deals, both for personal gain and to “provide jobs” back home. What’s changed over the years is that the firms who want these deals are now multinational conglomerates who have no local connections or concerns. They just want the money. And the people “back home” just want a job. They don’t really care anymore if they must make a deal with the devil to get it. Most times they have no idea who employs them. Take American Bourbon, for example. Law says it must be made in the US. But all major “American” Bourbon distillers are owned by Japanese companies. No dignity left in American companies. It’s just about the money. With the unions now dead, American media silenced, and education corrupted, there is no where the average worker, if they were interested to get information on corporate morals, or lack thereof. A clean sweep for a bought and paid for America. Americans haven’t controlled their own fate for 50 years or more. Global trade is not inherently a bad thing. It’s bad when how it works and who it benefits are tightly controlled by a tiny minority who seek only one goal – control of all wealth for themselves. At this stage it’s not certain this can be changed. Or, changed without a violent revolution. Economists supply the technical reasons this is all not only acceptable but righteous. Politicians give it political cover. Education provides the lack of education necessary to carry it on. And violent political movements provide the outlets for the rage it creates among the hoi polloi. And the 1% live in splendor and watch the rest of us squander our wretched little lives. Perfect system.

  4. EDWARD K ROSS
    August 26, 2019 at 10:31 pm

    A clear description of the failure of economics and the political system that supports the elites and their snivelling cohorts, that should be read by students and the general public, so that they can seriously question the ruling elite. Ted

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