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U.S. Business Behind Trump’s trade rhetoric lies some truth about lost jobs

Donald Trump speaks during a rally in Spokane, Wash., May 7, 2016.

Ted S. Warren/AP

At a rally in upstate New York last month, it didn't take long for Donald Trump to arrive at a favourite topic. "We are being decimated on every deal we make," Mr. Trump said. The North American free-trade agreement "cleaned out the country," while trade with China is "the single greatest robbery in the history of the world." The proposed Trans-Pacific Partnership trade accord is "a disaster."

When it comes to discussing trade, Mr. Trump relies on a mix of hyperbole and falsehood. His proposed solutions – a regime of high tariffs and punitive actions against multinational firms – break with decades of Republican Party orthodoxy. Mr. Trump often sounds like a visitor from an earlier era, when trade barriers and trade wars were the norm.

Yet beneath the crazy talk there is an undercurrent of truth. While trade experts strongly disagree with Mr. Trump's prescriptions, they acknowledge that his analysis touches a chord. In particular, researchers have found that an increase in trade with China starting in 2001 had a swift and significant impact on U.S. manufacturing employment. Such costs, however, have been played down while government assistance to those losing jobs as a result of trade deals hasn't proven effective.

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"In a blunt-force instrument kind of way, Trump is focusing on the complaints of the losers and they are genuine complaints," said William Galston, a senior fellow at the Brookings Institution in Washington. Mr. Trump's rhetoric has "served as a kind of corrective to the complacency of trade experts."

Mr. Galston asserted that business leaders and politicians can no longer rely on the traditional arguments in favour of trade agreements – that the country as a whole is better off when American companies have new markets for their products and U.S. consumers have access to cheaper goods. To win public support for future trade agreements, lawmakers need "not just different messages, but actually different packages," he said.

Of course, Mr. Trump is not alone in his radical skepticism of trade deals. Vermont Senator Bernie Sanders also opposes trade agreements such as NAFTA and the Trans-Pacific Partnership. Even former secretary of state Hillary Clinton, the leading contender for the Democratic nomination, has stepped back from her prior support for the TPP, saying that she is unable to support the deal in its current form.

The number of manufacturing jobs in the United States has been on the decline since the end of the Second World War as technological change has transformed large swaths of the economy. Trade deals have played a part in the decline, too, albeit a lesser one. In particular, China's accession to the World Trade Organization in 2001 would prove a turning point underappreciated by economists. Prior to that, China already benefited from low tariffs on goods it exported to the United States. But that privilege had to be renewed annually by U.S. lawmakers. Once China entered the WTO, however, the uncertainty was removed and the flow of Chinese imports surged.

Earlier this year, a group of economists, including Daron Acemoglu and David Autor of the Massachusetts Institute of Technology, published research claiming that import competition from China caused an overall loss of between two and 2.4 million jobs between 1999 and 2011. Related research by some of the same authors showed that the job losses were concentrated in certain parts of the country and had long-lasting effects on the broader community. In hard-hit areas, unemployment increased, both in the manufacturing sector and beyond, while wages declined. The effects of the trade shock lasted at least a decade, the researchers estimated.

Under such circumstances, it's not difficult to see why Mr. Trump's rhetoric resonates. But his proposed solutions would cause a whole new set of problems, economists say. "The best policy is not to stop trade," said Peter Schott, an economist at Yale University. "The best policy is to figure out ways to ease the transitions of workers." Prof. Schott said that faced with trade-related job losses, workers have proven far "stickier" than economists anticipated – less willing or able to move in search of new opportunities. More research is needed, he said, into policies that might help workers get unstuck.

For now, the specific help provided by the U.S. government is the Trade Adjustment Assistance program, which dates back to the 1960s. In some cases, the program offers an extension of unemployment benefits and support for job training. "The problem is it hasn't been very large and hasn't been very effective in terms of retraining people in the right areas," said I.M. Destler, a professor of public policy and trade expert at the University of Maryland.

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Prof. Destler said that while trade has often emerged as an issue in presidential campaigns, it has taken on an "exceptional prominence" in the current race and Mr. Trump doesn't sound like any previous candidate. "Trade advocates have always warned of the danger of trade wars," he said. "It hasn't seemed very real to me, but in this case it could be."

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