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The Inevitable Death of Global Trade As We Know It

Free-trade proponents accuse Trump of imperiling a decades-old system, but a reckoning was due no matter what.

Al Drago/Getty Images

You would be forgiven for not immediately noticing the economic impact of Trump’s burgeoning trade war with China. The stock market dipped on Wednesday, but it hasn’t nosedived. The monthly employment numbers announced last week were solid. More Americans than ever are quitting their jobs to seek new ones, a sign of a strong labor market. The economy’s strength may be why the Trump administration feels comfortable being so aggressive—any negative hits will just be absorbed by an economy running hot.

This is not a full-fledged trade war (yet), as the numbers involved thus far are relatively low. For example, the tariffs that took effect last Friday—a 25 percent tax on $34 billion in Chinese goods—amount to just $8.5 billion in annual tax increases on those imports, or less than one-two thousandth of the total U.S. economy. And even that overstates things, because the U.S. trade representative has set up an “exclusion” process for companies to get their products taken off the tariff list. The latest threat, a 10 percent tariff on $200 billion in Chinese goods, would add another $20 billion a year—hardly an existential threat to America’s economic recovery.

A common fear expressed by critics of Trump’s trade policy is that, over time, his recklessness risks the end of the global trading system, a framework of rules put in place after World War II that, they claim, have brought about stability and security. Retaliatory tariffs piled upon tariffs will eventually make those rules irrelevant. And at that point, the entire system would collapse.

But that system was inherently unstable, as it boosted corporate profits at the expense of millions of workers. Trump or no Trump, a backlash was inevitable. And if the global trading system is to survive, its gross imbalance must be corrected.

Business groups have warned that hundreds of thousands of jobs will be lost due to tariffs and trade wars. The Chamber of Commerce put the number at 2.6 million jobs. The Business Roundtable strained to deliver examples of this; the best they could come up with was a reversal of a plan to hire 40 workers. Nevertheless, they called Trump’s steel and aluminum tariffs “a self-inflicted wound on our economy.”

The actual results of tariffs are mixed; some plants hire and others don’t, some prices go up and others go down. The business community has an ideological interest in overhyping the impact of tariffs, because they want to be able to take advantage of cheap overseas labor without consequences. But just like tariffs, the policies embedded in free trade agreements, as practiced by both parties, creates winners and losers.

The United States lost five million manufacturing jobs from 2000 to 2014, while the U.S. trade deficit peaked at nearly 6 percent of gross domestic product. Economists like David Autor call this the China shock, because it occurred on a similar timeline as the country’s 2001 entry into the World Trade Organization. The bounty of cheap Chinese goods had a real human cost here at home.

The losers in this exchange were subsequently ignored, told that temporary wage assistance or retraining programs would paper over these trifling problems. As Jared Bernstein and Lori Wallach put it in a 2016 manifesto calling for progressive trade, “The hollowness of these false promises is finally evident to the broad electorate. The rules must be written for all the cars on the road, not just the Lamborghinis.”

Trump promised to govern for those without Lamborghinis—the “forgotten men and women.” He isn’t doing a whole lot for them, but he capitalized on their discontent, a toxic stew of racial, cultural, and economic grievances. That gives him the rope to impose aggressive tariffs, even if they might harm communities where his base lives. Maybe manufacturing communities are willing to live with Trump’s haphazard experiment because they have already lost millions of jobs in what feels like a long-running trade war—one in which, for decades, the United States never fired a shot on their behalf.

On the other side of this equation is outsourcing enriched multinationals far more than it did any third-world factory worker. Bangladeshi garment workers who saw a textile mill collapse over their heads, or Chinese workers at Foxconn who had large nets installed at their plants to catch colleagues attempting suicide, probably don’t make them feel like they’re on the winning end of the trade exchange. Companies move manufacturing plants to wherever they can pollute the most and pay the least. Bolstering workers isn’t really the goal.

All of this makes the global trading system more like a global disaster waiting to happen, susceptible to discontent from workers all over the world, in industrialized and developing countries. The path outlined by progressive trade analysts would create global labor standards, with decent wages and working conditions and health safeguards, adjusted for the level of development in a particular country. In their telling, with solid standards in place, businesses would have less incentive to outsource, and workers get to share in the benefits of trade.

As the University of Rhode Island’s Erik Loomis counsels, the only way to truly enforce such standards, as well as protect the human rights of workers, is to enable them to file trade disputes when a company breaks the rules. “Workers and citizens could sue companies for stolen wages, unchecked pollution, and violence against union organizers,” Loomis writes. “It would tap into some Trump voters’ concerns for their economic security and draw people away from a politics of hate and fear and toward a politics of solidarity and security for workers at home and overseas.”

There was bipartisan agreement in the United States in 2016 that the free trade consensus wasn’t working for everyone. Trump’s solution to this problem is too inward-looking, and frankly too xenophobic, to succeed. The trade solutions from the left stress global unity among the working classes, to break the stranglehold that elite business interests have on the agenda. It’s not the narrative you’ll hear much amid the cries of trade war, but it ought to be heard.