A New Foreign Policy by Jeffrey D. Sachs

Author:Jeffrey D. Sachs
Language: eng
Format: epub
Tags: POL011010, Political Science/International Relations/Diplomacy, POL011020, Political Science/International Relations/Trade & Tariffs
Publisher: Columbia University Press
Published: 2018-10-01T16:00:00+00:00

10

THE ECONOMIC BALANCE SHEET ON “AMERICA FIRST”

President Donald Trump believes an “America First” foreign economic policy would save Americans’ income and jobs and would help rebuild the country. For Trump, the economic content of America First is aggressive trade protectionism, a closure of borders to migration, economic sanctions against U.S. adversaries, rejection of China’s investments in U.S. companies, and other measures to give the United States a purported advantage in economic power vis-à-vis America’s rivals. Putting aside the moral and diplomatic dangers in Trump’s brazen assertion of American self-interest above global well-being, there are several dangerous myths in Trump’s economic reasoning.

Trump’s most provocative and misguided claims arise in regard to America’s international trade and investment policies. He has repeatedly claimed that by getting tough with American firms moving overseas to China and Mexico he will restore American jobs and wealth at home. In this case, Trump has spotted a true phenomenon—the offshoring of jobs—but grossly exaggerated its importance and shot utterly at the wrong target.

American manufacturing companies have indeed moved jobs to China and Mexico in order to benefit from lower wages for the labor-intensive segments of the production process. A recent study shows that as of 2014, U.S. multinational firms employed around 706,000 manufacturing workers in Mexico and 753,000 in China, or about 1.5 million workers in total, in overseas affiliates in which the U.S. firms have majority ownership.4 The Mexican production is directed toward the U.S. market under NAFTA, while the Chinese production is for both the United States and the rest of the world.

Of course, 1.5 million is not a trivial number of workers, but it amounts to just 1 percent of the U.S. labor force. Manufacturing jobs as a whole in the United States are just not that numerous anymore because of the long-term processes of automation. In 1970, manufacturing jobs constituted 25 percent of the workforce; today, they constitute just 8.4 percent. It’s not that the manufacturing jobs went overseas; they mostly went the way of smart machines. Yesteryear’s assembly workers are today’s assembly-line robots. And today’s remaining manufacturing workers are tomorrow’s artificial intelligence systems.

There is another fallacy. Reversing the offshoring would not create the same 1.5 million jobs inside the United States. Production is much more capital intensive in the United States than in China and Mexico because of higher U.S. wages. The 1.5 million workers in China and Mexico might translate into 750,000 workers inside the United States. This is just 0.5 percent of the U.S. labor market. And even those supposed job gains overlook the much higher production costs that the U.S.-based companies would incur when the jobs return, causing those firms to lose international competitiveness and to cut back on other employment already in the United States, such as the R&D units that support overseas operations.

Of course, some offshore production will never return to the United States. Some of the overseas operations have nothing to do with the U.S. market. And even production for export to the U.S. market is not so easy to cajole back home.

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