Donald Trump has made it clear that he doesn’t believe that America has gotten the better end of trade deals over the past twenty years and has built much of his appeal to voters who have seen their wages stagnate and have witnessed or fear that their jobs will be outsourced overseas to places with lower labor costs.
And it is the lower labor costs in places like Vietnam, which is part of President Obama’s Trans-Pacific Partnership trade agreement, that make the deal so attractive to some multi-national manufacturers. Vietnam’s textile workers are paid, on average, $100 a month, a labor cost that cannot and should not be matched domestically.
This is why before Mr. Trump renegotiates any trade deal, he should push through a series of tax and regulatory changes as well as the repeal and replacement of Obamacare, that will significantly lower the cost of doing business in the United States. Without these type of domestic reforms, any changes to the TPP or any other trade deal will only have illusory domestic job benefits.
It is important to remember that the CEOs of publicly traded companies have a fiduciary responsibility to maximize profits for their company’s shareholders. Lowering the regulatory, tax and health care costs of doing business in America as a first step toward a new trade policy helps level the economic playing field, so companies will not only be less inclined to offshore jobs regardless of any trade deal that gets negotiated, but would look to the U.S. as being open for business once more.
When these cost lowering actions are combined with an increased emphasis on negotiating an end to currency manipulation by foreign trading partners, the more secure business environment offered in the United States over many countries, and significantly lower transportation costs to reach U.S. consumers, a framework will be in place allowing the U.S. worker to compete against low-cost foreign competitors.
One trap that Trump must avoid is taking actions that undermine his prime objective job growth policy by increasing the cost of labor in the United States through feel-good policies that hurt job growth and opportunity. Post-it note ideas, like increasing employer child care cost burdens or increasing costs through mandatory paid maternity and paternity leave have this exact effect of increasing labor costs and making the U.S. less competitive.
This is not to say that individual employers couldn’t or shouldn’t offer these benefits to attract and retain employees, but that is a choice. The government however should not mandate these increased labor costs as every increase in this critical area further tips the scales against Trump’s stated goal of having good paying jobs created in America rather than being moved overseas where labor is less expensive.
To achieve the goal of making America an increasingly attractive place to build factories rather than Mexico, China, Malaysia or Vietnam, it will require unusual discipline to avoid feel good traps that increase government imposed costs that tip the scales against creating jobs domestically.
Another aspect of Trump’s promised trade agenda is to rethink policies or proposals that have the potential of getting in the way of making the best deal for America.
One example where Trump could reset the debate over these talking point type proposals is the constant refrain to get rid of various agriculture subsidies, particularly for sugar, regardless of what foreign sugar producers are doing to manipulate their costs for production.
Rather than being stuck in an absurd, losing, binary argument between favoring sugar subsidies versus opposing them, Trump has a unique opportunity to ask Congress to pass legislation which gives his Administration the best of both worlds. This third way has been proposed by Representative Ted Yoho (R-Fla.) and is known as the zero for zero sugar policy.
If the Yoho proposal became law, Trump would be able to negotiate with foreign sugar producers with the strongest possible hand to end their subsidies, because Congress would have already ended U.S. sugar supports contingent upon reciprocal foreign action.
It is this kind of creative approach that would allow a U.S. president to negotiate from a position of strength to get the best deal for America, rather than re-engaging in the long stagnated philosophical debate about agriculture subsidies.
America is a trading nation, no president or Congress will change that, however, given the importance of trade to our national economy, it would be foolish for any president to fail to re-evaluate U.S. trade policy.
Take the TPP deal that is proposed. The U.S. already engages in an enormous amount of trade with the eleven countries involved. In fact, the Congressional Research Service reports that in 2014 the trade flows between the eleven nations in the Trans-Pacific Partnership and the United States resulted in $905 billion in U.S. goods and services exported and $980 billion imported, a net $75 billion deficit. So, the contentions by TPP supporters that failure to pass Obama’s trade deal will fail to open major markets is just false. America already trades with these countries, the TPP changes the terms of that trade into perpetuity, and that is what is being debated.
It would be the height of arrogance to assume that the multi-lateral TPP is the only way forward for trade. Given the threat the TPP poses to our nation’s ability to create our own legal and regulatory rules over economic and other activity, the deal’s failure to address currency manipulation by our trading partners (which allows them to effectively make U.S. goods more expensive relative to their market,) and the docking provisions which allow other nations to join the trade partnership, it would be irresponsible for Congress to act on it in a lame duck session.
Instead, Congress should delay any consideration of TPP to allow the next president to put a fresh set of eyes on it to ensure that any deal that is submitted is something that is in America’s interests not just today, but in the decades to come.
Donald Trump’s trade challenge will be huge and the success of his potential administration may largely rest on how he resets economic relations around the world.
Rather than fighting about TPP in a lame duck, Congress should lay the foundation for growing the economy by moving forward with the tax, regulatory and health care reforms needed to lower the cost of labor in the United States, setting the stage for the changes needed to keep America competitive to be passed and put on a potential President Trump’s desk in early in 2017.
Making these fundamental reforms early will set the stage for a new, renegotiated trade policy that grows America’s economy and creates American jobs while benefitting the entire world.