Saturday, February 04, 2017

Trade benefits the poorest of the poor. Isn't that a Progressive ideal?

Freer trade sends jobs to the places that need the jobs the most.

"General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!" Trump tweeted.

The President has loudly proclaimed victory over Ford's keeping its plants in states like Kentucky and Michigan rather than moving to Mexico. But who is helped and who is harmed in this arrangement? Obviously, Ford keeping its operations as they are may have kept workers at that plant who otherwise would have been laid off. But, even being laid off, these workers would qualify for trade adjustment assistance, a program by which the federal government provides extended unemployment insurance provided the workers take courses in other trades that would help them find work elsewhere. This is in addition to anything else Ford was offering workers it might lay off, which usually involves a decent severance package. These workers live in America where we have general rule of law, 24-hour electricity, clean water, decent public education, and a solid social safety net that includes things like Medicaid, which is expanded to 138% of the federal poverty line in Michigan.

What about the Mexican villagers who were expecting this factory to be a boon to their economy and provide jobs for their young people? The BBC World Service did a story on the village of Villa de Reyes and its depression: Trump's Ford Deal Dashes Mexican Villagers' Dream. Constructing the plant had created much-needed low-skilled jobs for those in poverty. Rising incomes from jobs at the factory would have brought more private investment to the area. Instead, it's a broken dream. They don't see it the way Trump does. One would-be worker says it best:
"They accuse Mexicans of taking their jobs. But now they're coming in and taking away ours."

As I wrote before, I find all the anti-trade rhetoric by Progressives like Bernie Sanders during the campaign against trade to be highly problematic. As Ezra Klein wrote here, using data from World Bank economist Branko Milanovic: "Even the very poorest Americans — those at the 2nd percentile of income in the United States — are at the 62nd percentile globally." If having an income greater than $17,000/year in the US puts you in the upper 90% of the entire world, shouldn't Progressives be happy when jobs are created in areas like San Luis Potosi, where GDP/capita is around $8,400 USD / person? The Trump Republican answer is "But we're Team USA, they're Team Mexico," and that's called nationalism which walks a thin line from being racist. The President does not understand that Adam Smith and others proved long ago that the pie is not fixed, trade makes both parties better off, and two parties don't engage in a trade unless they both benefit. This is why freer trade has been a hallmark of official US diplomacy since before WWII.

Most Americans around large cities don't think twice about driving to shop at a grocery that just happens to be in a different county or township. What if we built walls to restrict that commerce, or forbid businesses from moving across the line? That would seem absurd and terribly restrictive on the economy. (Some on the Left have actually advocated for this restrictions in US cities under a version of their "Economic Bill of Rights.") Further, what if we built a wall to keep residents from moving? That would seem like Berlin before 1989. Perhaps my argument ad absurdum annoys you, but I find it to be precisely where the logic of the Bernie Sanders-led Left and nationalist Trump-led right both lead-- and I reject it as harmful to all parties.

I encourage you to read the BBC report, watch the video, and see it from Mexico's perspective. In my next trade post, I'll look at how trade and the price system (also called capitalism) does more for international relations and peace than any formal process of diplomacy can do.

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