Brian Lee CrowleyIn politics, an idea’s truth-value is often in inverse proportion to its vote-getting value. Nowhere is that truism more apparent than on the US campaign trail, writes Brian Lee Crowley, where both Donald Trump on the right and Bernie Sanders on the left are trampling on the merits of free trade on their way to the ballot box.

By Brian Lee Crowley, April 15, 2016

One of the dominant themes of the US presidential primaries has been “the good jobs that nasty foreigners stole.” Candidates ranging from Donald Trump on the right (America doesn’t make anything anymore) to Bernie Sanders on the left (Flint Michigan’s problems are due to ruinous free trade deals), the political myth-making machine is in high gear. Americans have been had by a traitorous political class that inexplicably and unnecessarily gave away the store in trade negotiations.

The resulting rout of manufacturing jobs, it is alleged, has deprived the working class of “good” jobs they effortlessly used to enjoy making American manufactured goods for American consumers. Since we let those cheating foreigners in with their unfair labour practices and substandard goods, the refrain goes, they’ve stolen the family silver and left America, and especially American manufacturing, on its deathbed.

There are fewer manufacturing jobs because Americans are getting better at manufacturing. They are beating the challenge of overseas competition by producing more with less.

A lifetime of observing politics, however, has convinced me that an idea’s truth-value is distressingly often in inverse proportion to its vote-getting-value. To pick just two Canadian examples, think “Canada has the best health care system in the world” and “supply management is in the national interest of Canadians”. Demonstrably false on the facts, both statements are nonetheless widely parroted by politicians of all parties on the hustings.

So, to steal shamelessly from former federal fisheries minister Brian Tobin’s phrasebook, are we down now finally to one last, lonely, unloved, unattractive little manufacturer clinging on by its fingernails to America’s shores, as so many presidential candidates are pleased to suggest?

Hardly. Contrary to Mr Trump’s assertion that Americans don’t make anything anymore, Americans have never made more things. According to an excellent review of the data by the estimable Peterson Institute in Washington, manufacturing output in the US is at an historic high and rising.

Yes, US manufacturing employment has fallen by nearly a third since 2000, but put that in this context of rising output. There are not fewer jobs in manufacturing because Americans are getting beaten by foreigners and therefore losing markets. There are fewer manufacturing jobs because Americans are getting better at manufacturing. They are beating the challenge of overseas competition by producing more with less.

Canada, which has a productivity problem of big proportions, as well as America, need to get their heads around this. Rising productivity means rising living standards. At its most basic, what is happening in US manufacturing is therefore exactly what economies on both sides of the border need more of.

America is already great, and ill-considered protectionism would detract, not add, to its stature

In fact US manufacturing has been leading the US economy in rising productivity. That’s why the Peterson paper underlines, “the US manufacturing base is becoming bigger than ever and the productivity of firms and workers in manufacturing leads the rest of the US economy in growing stronger.”

Those who buy the Sanders-Trump account (Sandrumps? Trumpanders?) are likely to fall back on the famous soundbite of one of their memorable predecessors, Ross Perot, who charged that free trade would create a “giant sucking sound” as unpatriotic investment and jobs fled to less expensive and less regulated climes.

No one can dispute “offshoring” happens, as uncompetitive manufacturing plants in the US and elsewhere close and the jobs are transferred overseas. The question is whether the loss overseas is the end of the story. It is not. To quote the Peterson paper again, “When a US firm increases employment at its foreign affiliates by 10 percent, employment by that same firm in the United States goes up by an average of 4 percent. Capital expenditures and exports from the United States by that firm also increase by about 4 percent. R&D spending increases by 5.4 percent.” Offshoring is no zero sum game.

And since “value-added” seems to be the trade critics’ holy grail note that their assumption that the greatest value added is in manufacturing is quite wrong. In Canada, for example, we know that value added is significantly higher in natural resources than manufacturing. In the US, Mr Trump criticises Apple for making its computers overseas, completely ignoring that fact that the physical production of an iPhone or iPad is actually the lowest value-added piece of a long chain that stretches from concept and design through to sales and marketing. Apple’s highest value added activities, which are mostly sophisticated business services, are largely carried out in the US.

Finally, those vulnerable low-income workers that the Sandrumps claim to speak for have benefited hugely from the lower costs and greater consumer choice that trade makes possible. The gain, about $10,000 per household, has most benefited the poor and lower-middle-class households, not the well-off. And polling data shows that Americans are cannier than their politicians, wisely preferring low prices to Made In USA even if it means more imports.

America is already great, and ill-considered protectionism would detract, not add, to its stature while hurting the people protectionists claim they want to help.

 

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.