August 08, 2017

Make Globalization Work Again

President Donald J. Trump has sought to make the concerns of American workers the centerpiece of his administration – especially those who feel left behind by the significant economic transformations of recent years. His critiques of the contemporary American marketplace are not without merit. As vast swaths of the world emerge from poverty and demographic heavyweights like China and India inch toward great power status, the American worker has never faced so much competition.

Yet the administration’s proposed solutions have so far tended to misdiagnose the problem. Global engagement fueled the 20th century emergence of the American superpower and underwrote our modern standard of living. Rather than walling off the United States from the world and subsidizing aging industries, Washington should instead seek to equip American workers with the tools and skills necessary to be competitive for the future – and in so doing, make global engagement work again. 

The globalized economy has brought tremendous wealth to the United States – as well as tremendous change. Since the modern system of international investment and trade was realized in the 1950s, the United States’ GDP has enjoyed a boost of more than $2 trillion in real dollars. That translates to almost $20,000 in gains per household – from cheaper goods to fresher produce to products and services that would have been impossible without international resources and supply chains. Exposure to overseas markets have allowed American companies to grow and experiment more profitably, and – with the help of overseas competitors as well – enjoyed greater innovation.

These changes brought by global economic engagement have also always come with trade-offs, such as when some labor-intensive industries move to cheaper markets. Across the entire American economy, gains have far outweighed losses – but those losses have still been real, and those gains not always widely shared. Over the last 13 years, almost 160,000 manufacturing jobs have been lost annually. Improvements in worker productivity – the true engine of economic growth – have historically been closely associated with rising wages for those workers. In recent years, however, that relationship has diverged. While the American economy and its workforce are more productive than ever, the gains from that productivity are increasingly realized by only a tiny few. Since the 1980s, economy-wide net productivity has grown 62 percent. The pace of Americans’ wage growth has nowhere near kept up – with the exception of the top 1 percent of American earners, whose earnings have more than doubled.

Policymakers and commercial leaders should focus on how to prepare American workers to compete globally for the opportunities of the future.

These worrying trends are not the result of a malicious global economy out to take advantage of the American worker – after all, it was synergy with the global economy that powered the United States’ emergence as a superpower at the same time that it pulled billions around the world out of poverty. Rather, these more recent challenges are failures of policy and governance in both public and private sectors resistant to change. Policymakers and commercial leaders should focus on how to prepare American workers to compete globally for the opportunities of the future – and avoid temptations to cordon off and protect industries and practices of the past.

President Trump has argued that American companies have not always faced a level playing field on the global economy. Some countries do put a heavier thumb on the scale for their domestic industries than the United States, whether in the form of tariffs on American imports or subsidies for hometown companies. Next-generation industries, like solar panels and electric cars, represent some of the most important targets for a more level playing field. Tesla, one of the most visible symbols of forward-looking American innovation and advanced manufacturing, faces an uphill battle in China, home to the largest number of global drivers. Chinese electric carmaker BYD is so lavishly subsidized that its status as a private company is debatable. Combined with a 50 percent import tax, Tesla’s cars only represent 2 percent of the Chinese market for electric vehicles. Industries like these have enjoyed tremendous success and in many ways represent the future of American engineering and manufacturing – and as such, deserve more attention when facing anticompetitive practices abroad. 

Yet the Trump administration has unfortunately focused its attention on industries that do not need assistance, or for which assistance would be an inefficient use of resources. Last month, the president reiterated his intent to protect U.S. steel producers from unfair overseas competition, especially from China, which he accused of “dumping steel and destroying our steel industry.” He has also pledged to “bring back” U.S. jobs to the coal industry, a supposed victim of regulation and unfair competition. 

Yet neither of these sectors make sense for additional investment or government intervention because of economic fundamentals – not unfair competition or culture divides imposed by policymakers. The steel industry is facing a global slowdown as countries successfully develop, and their foundational infrastructure and building construction consequently taper off. Coal, despite its reemergence in American political discourse, appears to be in terminal decline as natural gas undercuts it in the fossil fuel market, and cheap solar energy is likely to eventually finish the job.

While attempting to forcibly resuscitate these industries would be unwise and eventually ineffective, the displacement of their workers should nonetheless seize policymakers’ attention. The president’s narrative, that industries like these have been suffering a slow-motion death by a thousand cuts, is not without some truth. The solution, however, is to prepare American workers and firms for the industries of the future, not expend disproportionate time and resources trying to prevent that future’s arrival.

The United States could learn much from how some states and, indeed, other wealthy nations, have ensured that blue-collar employment can continue to provide a high standard of living. Germany’s much-studied apprenticeship model leans on public-private partnerships and civil society organizations to equip workers with in-demand and broadly-flexible skillsets – skillsets that also make workers more globally competitive. Some American states are experimenting with treating coding as a vocational trade, viewing programming languages as skills more similar to those wielded by electricians than consultants. Simultaneously, American firms need to be incentivized to more broadly grow the skills of their human capital – and, perhaps through changes in corporate governance rules, encourage greater investment in research and development and broader profit sharing. The United States has in its long history overcome much more challenging hurdles to inclusive economic growth, and has the resources to do so again. 

The sense of economic unease facing many Americans is a legitimate reaction to what has been a period of wrenching economic transformation. As traditional forms of employment have declined and historical patterns of wage gains have stagnated, neither the free market nor the government have done enough to ensure displaced workers have a path for transitioning to new and more lucrative industries. The solution is not, however, to draw back – to pin all the United States’ challenges on the outside world, to throw up excessive barriers to both people and goods. Rather, policymakers and commercial leaders should remember the model that worked – the model that embraced global economic engagement, that equipped American workers to compete, and that fueled the American century. The United States has the resources and the ingenuity to make that model work again – should only its public and private sector leaders choose to do so. 

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