Trump administration trade policy review misses the big picture

Robert E. Scott

Robert E. Scott Senior Economist and Director of Trade and Manufacturing Policy Research, EPI

The Trump administration announced last week that it would sign two executive actions to launch a review of U.S. trade policy. A review of trade policy and its potential to harm U.S. workers is welcome and long overdue. However, the specifics of the review offered by President Trump mean that it is likely to fail to provide any help to American workers, in part because it asks the wrong questions.

The president’s first order requires Secretary of Commerce Wilbur Ross and White House Trade Council to “identify every form of trade abuse and every nonreciprocal practice that contributes to the U.S. trade deficit,” according to the commerce secretary. The report is to be completed within 90 days, with an analysis of the detailed cause of the deficit “by country and major product.” But the trade deficit is not a “product by product” or a “country by country” problem. We know what it is caused by and what should be done about it.

The trade deficit is not a bilateral problem between the United States and individual countries. The U.S. trade deficit is a result of global trade imbalances. There are ten to twenty countries that have developed large, persistent, structural trade surpluses that are distorting trade flows worldwide. The top ten surplus countries are shown in Figure A below. In 2015, these countries, led by China, Germany, Japan, Korea, and Taiwan, had a collective trade surplus of approximately $1.5 trillion. (The figures reported are current account balances, the broadest measure of trade in goods, services and income.)[1] The United States’ current account deficit of $463 billion in 2015 accounted for less than one third of the total surplus accumulated by the big surplus traders. Other countries have also suffered from persistent, structural trade deficits, job losses, and downward pressure on wages, including Great Britain, Brazil, Australia, and Mexico. Attacking the root causes of global trade imbalances will benefit all deficit countries, and not just the United States.

It is also important to note that Mexico is not a country that has maintained large, global trade surpluses. In fact, it has had significant current account deficits in every year since 2000. This analysis shows why bilateral trade data are a poor guide to trade policy development. Measures of each country’s overall trade balance with the world provide a much more accurate and effective basis for identifying global distortions in trade flows. ­

The causes of global trade imbalances are also well known. While dumping, subsidies, and massive amounts of excess production capacity in some industries (e.g. steel, aluminum) and some countries (e.g., China, Korea, Japan) are an important cause of the problem, the single most important cause is currency undervaluation. Countries with larger, persistent trade surpluses have undervalued currencies. Rebalancing of major currencies, last achieved following the 1985 Plaza Accord, is the single most effective way to rebalance global trade flows. Such an agreement is needed to increase (realign) the exchange rates of the major surplus countries shown in Figure A, relative to the U.S. dollar, which is heavily overvalued.

Figure A

Countries with the 10 largest current account balances in 2015 (billions of US dollars)

CountryCurrent account balance
China 600.2
Germany 284.224
Japan 135.58
Korea 105.871
Taiwan 76.165
Switzerland 75.822
Russia 69
Netherlands 64.417
Singapore 57.922
Italy 39.907

 

Note: China's trade balance is reported in place of current account balance due to reported errors in China's broader goods and services trade flows.

Source: International Monetary Fund, World Economic Outlook Database, October 2016

The president’s executive orders on trade also “reflected a marked softening” from the heated trade rhetoric used by Trump on the campaign trail in 2016. The announcement also seems to reflect a search for small, specific, trade actions that could yield “tweetable” trade victories. For example, the president’s second order calls for “enhanced collection” of anti-dumping and countervailing duties, to address the “under-collection” of such duties. White House National Trade Council Director Peter Navarro said that $2.8 billion in such duties were uncollected between 2001 and the end of 2016, or approximately $175 million per year. When compared with the U.S. goods trade deficit, which reached $749.9 billion in 2017, such duty “under-collections,” were small potatoes indeed. While recouping these “missing” duties would be good for injured workers and companies, and would create opportunities for regular announcements of trade “victories,” they will have no significant impact on the overall U.S. balance nor on trade related job losses.

Small victories on unfair trade, while welcome, will not bring about the currency realignments needed to rebalance trade flows. Voters, Congress, and manufacturers should settle for nothing less.

Posted In: Allied Approaches

Union Matters

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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There is Dignity in All Work

There is Dignity in All Work