Senior Vice President for International Policy
May 07, 2023
In a nutshell, the speeches offer a prescription for “a modern industrial and innovation strategy” built on recent legislation such as the Inflation Reduction Act.
However, these speeches are perhaps more interesting in their diagnosis of the ills this strategy is supposed to overcome. Unfortunately, facts and data are largely missing from the debate.
In sum, the officials blame international trade for failing industries and collapsing incomes.
But it mostly isn’t true. Consider:
In the words of one official, “the postulate that trade liberalization would help America export goods, not jobs and capacity, was a promise made but not kept.”
Not so. Over the past 30 years, the U.S. economy has generated more than 45 million jobs — net. The number of U.S. jobs that depend on trade now exceeds 40 million — and jobs that depend on trade pay a premium of 15% to 20% over jobs that don’t.
We are told that “working families and communities were left behind.” The United States is a big place, and competition, automation, innovation, and trade can be disruptive.
And yet real wages — or as below, personal consumption expenditures, showing what people are really consuming — have risen dramatically in recent decades. People are making do not with less but with … more.
The speakers also lament “the prevailing assumption that trade-enabled growth would be inclusive growth—that the gains of trade would end up getting broadly shared within nations.” The sense of a promise not kept is strong.
And yet the data say otherwise: The real household incomes of America’s lowest income quintile has risen more than 50% — in real terms — over the past three decades.
If anything, the trend of rapidly rising incomes among America’s poorest has accelerated: In the past decade, the lowest-income decile of Americans has seen the fastest growth in wages, according to the Financial Times.
We’re told that “America’s industrial base had been hollowed out.” It’s certainly true that awareness of critical dependencies is higher today, but — hollowed out? No, the data show U.S. manufacturing production has risen by about two-thirds over the past 30 years.
Not only trade is blamed for these ills: “Regressive tax cuts” are held up as a key driver of economic inequality. No matter that U.S. tax policies have only gotten more and more progressive.
The administration officials assure their audiences: “We’re avoiding the pitfalls of traditional trade deals anchored on tariff reductions.” Yet, it wasn’t that long ago (2015) that the Obama Administration’s Council of Economic Advisors was warning that high foreign tariffs were blocking U.S. export growth. Unfortunately, this is still true.
Facts are stubborn things. Getting a better grip on them — and letting go of unfounded political applause lines — is a precondition that must be met before trying to forge a “new consensus” on international economic policy.