Oren Cass
American Compass
Oren:
Your recent criticism of the Cato Institute’s “Faces of Globalization” video series overflows with misunderstanding, error, and insinuation. Although short on both facts and economic logic, you’re long on assertions – assertions that you obviously hope will carry the day simply because you express them as if they are what they are emphatically not: indisputable realities.
For example, you assert that “government [trade] agreements and trade deficits” have “eviscerated American industry, hollowed out communities across the country, and devastated millions of lives.”
U.S. industrial production hit an all-time high in September 2018, almost 43 years after America began running its still-unbroken string of annual trade deficits in 1976, 25 years after NAFTA took effect in 1994, and 17 years after China joined the WTO in 2001. This production has since fallen a bit, no doubt partly because the Trump-Biden tariffs raise the prices of many inputs used by American producers. Nevertheless, this production is today only 1.8% below that all-time peak of just six years ago. This fact combines with another – namely, that U.S. industrial capacity is now at an all-time high – to utterly belie your claim that American industry has been “eviscerated.”
And although you continue to assert that U.S. trade deficits damage the U.S. economy, you’ve yet to explain why. The U.S. runs trade deficits because foreigners wish to invest in America and to use dollars as a reserve currency. Can you tell us why such investment harms Americans, especially given that the size of both America’s and the world’s capital stock can and does generally grow? See the point above about U.S. industrial capacity, and note also that the inflation-adjusted size of the capital stock in America was, in 2019 (just before the pandemic), 178% larger than it was in 1975. (This capital stock in 2019 was also 66 percent larger than it was when NAFTA took effect and 36 percent larger than when China joined the WTO.)
In your essay you suggest that the only foreign investments that helps us are foreign direct investments. But you’re mistaken. For example, the willingness and ability of foreigners to use dollars to buy shares of stock on the NYSE increases American corporations’ incentives and abilities to expand and improve their operations.
As for the use of dollars as a reserve currency, please explain how we Americans are impoverished insofar as foreigners send us goods and services and ask to receive in exchange only engraved pieces of paper (or digital versions thereof)? Put differently, how is our economic well-being threatened by the fact that among our most valuable and highly demanded exports is a relatively stable medium of exchange?
Finally, where, exactly, are all the hollowed-out communities and lives devastated by trade? The U.S. is huge, so it’s easy to find at any time some hard-luck places and persons. But what serious evidence do you have that America today is suffering unduly from trade? As Stephen Rose points out, according to a Bureau of Labor Studies survey
24 million workers were either laid off or discharged per year from 2000 (the first year of the survey) to 2019. In contrast, the yearly manufacturing loss due to imports was 310,000 a year (this number would be 120,000 jobs lost per year if the gains from more exports were included). In other words, the number of workers who involuntarily lost jobs each year from U.S. employers was 70 times more than the job losses from imports.
If America really is, as you suggest, a nation beset with economic devastation, the blame clearly can’t be placed on international trade. But the deeper point is that you, President-elect Trump, and other protectionists – in order to better peddle your poisonous policies – wildly overstate the damage that economic change sparked by trade inflicts on America as you also wildly underestimate the health, dynamism, and robustness of America’s economy.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
