Andrei Sulzenko is executive fellow at the School of Public Policy, University of Calgary
A great irony of Donald Trump’s U.S. presidential campaign was his railing against trade agreements with foreign countries as the cause of lost jobs in the manufacturing heartland when, in fact, those job losses were largely “Made in America” and had little to do with trade.
It is not obvious why my statement might be true, and that’s the problem with the Twitter-dominated, sound-byte world. It’s a lot easier to blame foreigners for your troubles with the easy logic of saying, “Get rid of bad trade agreements to make America great again.”
Problem is, the causality is completely wrong. The real reason for the economic dislocation – as evidenced by poor employment prospects for underskilled, middle-aged workers (Mr. Trump’s putative constituents) – is that technological change continues the inexorable Schumpeterian path of “creative destruction.”
And much of that technological change is generated through American-made know-how, from Silicon Valley and other hotspots of innovation.
For their part, trade and its companion, investment, are merely the instruments of distributing the effects of technological change more efficiently; and they would continue, albeit less efficiently, absent trade agreements.
To underscore the relatively modest role of trade agreements, the average U.S. tariff is about 3 per cent, or about the same as the drop in the Mexican peso (and hence increase in Mexican competitiveness) every time Mr. Trump rails about the North American free-trade agreement.
There is nothing new in the phenomenon of technological change. The U.S. economy has gone from one dominated by agriculture and resource extraction to manufacturing to services in barely more than a century. And now, services themselves (for the most part domestically oriented) are being disrupted by technology – from banking to transportation to retailing – taking out even more lower-skilled jobs.
In the past, this process of creative destruction has transpired relatively smoothly because the overall rate of economic growth had been robust enough to accommodate the resulting job churn – a rising tide lifting all boats. The trouble is, the long-term U.S. growth path is now about half of what is adequate for relatively trouble-free adjustment.
So, there’s a real problem, centred on a lack of dynamism in the labour market, particularly for the undereducated 40-year-old to 60-year-old cohort. The challenge is by no means confined to that group, but it is in the vanguard of dislocation.
It’s not clear whether Mr. Trump and other politicians, populist or mainstream, understand that trade is merely the symptom, rather than the cause, of specific pockets of economic adversity.
More to the point, it would not be in their political interest to acknowledge the fact that the solutions are largely homemade and much more complex and long term than the ripping up of trade agreements with foreign scapegoats.
Therein lies the crisis of Western political leadership in the current slow-growth environment – a push to demagogic expediency at the expense of acknowledgment of domestic policy shortcomings.
Fortunately, Canada is not among those countries succumbing to xenophobic temptation, but we should not be smug.
It was not long ago that a fierce and divisive federal election campaign was fought over free trade. Opponents of our agreement with the United States declared that it would be the end of public health care, among other travesties.
The problem was that the explanation as to why that was patently false took several complicated technical steps, and pro-agreement politicians could not translate that into a suitable rejoinder. It was only after Emmett Hall, the eminent jurist and a founder of medicare, categorically refuted the doomsayers that the tide turned on that debate.
That example underlines a huge political leadership challenge: How to be straight with voters but still get elected. It is not only a question of political courage. It is also one of translating complex public-policy issues into digestible messages that can be transmitted by sound-byte dominated media.
Little wonder, then, that the citizenry is often fed the Pablum of wrong-headed solutions.Report Typo/Error
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