Every hour, thousands of Americans leave jobs or start new ones. From that perspective, Donald Trump’s nudging and pressuring to save some 800 jobs at Carrier from being shipped to Mexico is trivial — other than to the workers themselves. But if Trump is going to keep up these micromanaging moves, even when he’s kicking back in the Oval Office, then it’s a very big deal.
And this could be a troubling, even chilling, development. Already Trump has moved on from Carrier to another Indiana manufacturing firm, tweeting, “Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!”
Think about what Trump is telling company bosses across America: Open a factory overseas and maybe President Trump will send a nasty tweet telling America to avoid your products. Or perhaps your parent company will lose a government contract. (Such a thought may have flashed through the minds of executives at United Technologies, Carrier’s corporate parent.) Worst-case scenario: Your products will face Trump’s big, fat tax when you ship them back into the country.
Making a decent profit anytime is hard. Indeed, more American companies are dying than starting these days. Now imagine having to make products in a way that pleases your customers and the President of the United States. And think about one American company after another, year after year, attempting such a juggling act. It’s hardly a recipe for a prosperous and dynamic US economy.
The economic case for trade is an old one, but Trump’s election does nothing to invalidate it. America should specialize in and sell to other nations what we produce relatively efficiently. And we should buy from other countries what we produce relatively inefficiently. Moreover, as companies compete, they are forced to become more innovative or else lose ground. The results are more productive companies, more productive workers, and higher living standards overall for the nations on both sides of these trading relationships.
For all Trump’s bad-mouthing of the US economy, it remains the most innovative in the world and one that constantly pushes the technological frontier. And a big reason for this is that it is open to new ideas, talent and competition. No wonder our research suggests that big trade deficits are associated with higher employment, not less.
A recent survey of top economists asked whether it was smart to slap import duties on products such as air conditioners or cars to encourage producers to make them in the United States. All of them either “disagreed” or “disagreed strongly.” As one economist put it, “No. Just no.” Even the North American Free Trade agreement — the one trade deal Trump seems most fixated on — has produced net gains when it comes to productivity, wages, output and consumer spending for American citizens. Open trade, top Obama White House economist Jason Furman said in 2015, is “one of several tools that we can use to promote long-term growth in productivity and middle-class incomes.” We may live in a “post-fact” era, but these facts and analyses are hard to ignore.
But it’s also hard to ignore — or at least it should be — the plight of workers hurt by trade. And this seems especially to be the case from the “China trade shock” of the 2000s. Many communities hit hard by offshoring never really recovered. But the answer isn’t to keep companies from leaving. For starters, that would only hasten the rise of the robots, which already accounts for most of the job loss in manufacturing.
A better way forward would be to increase the economy’s level of dynamism and competitive intensity, while also updating the safety net for workers. We need to constantly be generating new kinds of high-wage jobs — tax and regulatory reform would help — as the old ones move elsewhere or are automated away to Robot Land.
At the same time, if the jobs aren’t where a displaced US worker lives, then government may have a role in helping them get to a city where the jobs are. Only half as many Americans move from state to state as they did a generation ago. The government can help increase mobility by funding relocation subsidies for the long-term unemployed living in depressed labor markets. Of course, workers have a responsibility to make sure they are preparing themselves to prosper in a modern, technologically advanced economy with no promise of lifetime employment at any one firm.
Fostering a dynamic economy is a messy business for management, workers and government alike. As the transition hurtles forward, lots of people are worried Trump will continue to manipulate government to his company’s interest even once he’s in office. But the bigger worry is that he will continue to manipulate other people’s companies. So far, he’s sending the very opposite of a pro-business message: Before a company makes a big business decision, it had better consider how Washington might react.