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International trade was a major theme in the opening half hour of last night’s presidential debate between Hillary Clinton and Donald Trump. Unfortunately, they ran roughshod over the facts—as they’ve both done repeatedly during the presidential campaign. What’s the reality on trade and the American economy?
Donald Trump: “Our jobs are fleeing the country. They’re going to Mexico. They’re going to many other countries… They’re leaving, and they’re leaving in bigger numbers than ever.”
On balance, this is nonsense. In fact, investments supporting millions of American jobs have poured into the United States in recent years. Foreign companies have invested $3.1 trillion in the United States and directly employ more than 6.4 million Americans with an annual payroll of more than $400 billion, according to the U.S. Department of Commerce.
That’s just the direct jobs. According to a study by the Organization for International Investment (OFII), investments in the United States from abroad support 24.3 million American jobs directly and indirectly.
And that’s not all. U.S. affiliates of foreign-headquartered companies purchase billions of dollars’ worth of inputs from local suppliers and small businesses, according to OFII.
Not only has the U.S. economy generated 14 million jobs over the past six years (net), “offshoring” is a minor contributor to job loss. While it discontinued compilation of these data in 2004, the Bureau of Labor Statistics previously reported the movement of work to overseas locations represented between 0.5% and 1.3% of all U.S. jobs lost in “mass layoffs” in the 1997-2003 period, according to a report by the American Action Forum.
By contrast, “almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth,” according to a report by economists with Ball State University.
Hillary Clinton: “When I was in the Senate, I had a number of trade deals that came before me, and I held them all to the same test. Will they create jobs in America? Will they raise incomes in America? And are they good for our national security?”
This comment is focused on the Trans-Pacific Partnership (TPP), to which both Clinton and Trump reiterated their opposition during the debate. The interesting thing is that the TPP passes Clinton’s three-part test with flying colors.
The TPP would boost U.S. annual real income by $131 billion by 2030, according to an analysis conducted by the nonpartisan Peterson Institute for International Economics.
This isn’t small change. It’s larger than the annual economic output of approximately 130 countries. It’s more than the annual economic output of 17 states.
The Peterson Institute also expects around 650,000 more people to work in export-related jobs (and fewer in lower-wage jobs) because of the TPP. Such a gradual shift in the mix of jobs will help raise wages: Manufacturing workers whose jobs depend on exports earn 18% more on average than those that don’t, and trade-oriented service industries pay a similar premium.
And national security? Just ask the eight former Secretaries of Defense who recently wrote a letter strongly backing the TPP. They wrote: “The TPP represents a choice for the United States. It is a choice between leading the world toward a future that supports U.S. values and interests, or standing back and allowing others — most likely China — to write the rules of the road for Asia in the 21st century.”
In fact, Defense Secretary Ash Carter has compared the TPP to having an extra aircraft carrier in the Asia-Pacific region.
Donald Trump: “So Ford is leaving. You see that, their small car division leaving. Thousands of jobs leaving…”
In fact, when Ford CEO Mark Fields was asked if the company would cut any U.S. jobs as part of its recent announcement of plans to build a new plant in Mexico, he responded: “Absolutely not. Zero. Not one job will be lost. Most of our investment is here in the U.S. And that’s the way it will continue to be,” he told CNBC.
A Ford spokeswoman added that “Michigan factory workers who now build the cars that are moving to Mexico will start building other Ford models instead.”
Ford employs 85,000 U.S. workers, up 50% over the last five years, according to CNBC. The company tweeted ahead of the presidential debate that it has invested $12 billion in U.S. plants in the past five years alone. That doesn’t sound like leaving.
Hillary Clinton: “I’m going to have a special prosecutor. We’re going to enforce the trade deals we have, and we’re going to hold people accountable.”
There’s no disagreement about the importance of enforcing trade agreements. The agreements we sign aren’t worth the paper they’re written on if they aren’t enforced. The Chamber has applauded vigorous enforcement again and again.
But this commonly expressed sentiment is a bit like the old saw about the critic who finds a restaurant’s food terrible … but goes on to complain that the portions are too small.
Before we can enforce trade agreements, we have to enter into trade agreements. However, most of our trade pacts were negotiated long before the rise of the internet and e-commerce, before the U.S. economy became so dependent on intellectual property, and before state-owned enterprises became major players in the global economy.
Which brings us back to the TPP. It will update the rulebook for trade. It offers landmark provisions that will protect our creative, innovative, and research-based industries as well as the small businesses that rely on new technologies and services to reach the 95% of the world’s consumers living outside the United States. It will foster digital commerce and introduce rules against the self-dealing of state-owned firms.
Before we can hold our trading partners accountable to these rules, we have to agree to the rules themselves. This is just one more reason Congress should approve the TPP.