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Appearing at New York University's business school commencement ceremonies on Friday, GE Chief Executive Jeffrey Immelt explained:
"While U.S. companies can win globally, the U.S. doesn't engage effectively enough on the world economic scene. With just 5 percent of the world's population and 25 percent of the GDP, we have a lot to gain, but are looking inward. Our trade deals are languishing in Congress, and we remain the only developed country in the world without a functioning Export Bank. Industrial exports are not a priority for the U.S."In the face of this headwind, we are having a raucous presidential election, one where every candidate is protectionist. Globalization is being blamed for unemployment and wage inequality; there is a general sense that this must be somebody else's fault; and improving competitiveness is not an option. Even though all of these trends hurt small companies more than big ones, it is difficult to achieve a productive global game plan between business and government."
Unlike the candidate who knows better (Hillary Clinton) and those who don't (Donald Trump, Sen. Bernie Sanders) Immelt cannot afford to pretend globalization is reversible or that the United States can prosper by shutting out the rest of the world. ("GE has $80B of revenue outside the U.S., so global growth is critical to our success.")
Business people and graduates of Econ 101 -- unlike quivering politicians feeding angry crowds spooky stories about the "trade deficit" bogeyman -- understand the trade deficit is not a bad thing that causes unemployment. This is nonsense. In fact, the trade deficit is often inversely related to employment.
Derek Scissors at the American Enterprise Institute reminds us:
"With $83 trillion in household net worth, the U.S. can afford to buy the imported cars, clothing, electronics, and pharmaceuticals Americans want."Protectionists know this, so they instead claim the trade deficit cost jobs. They don't even try to show it's true, they assert it and hope everyone nods. They've been doing this for decades. They've been wrong just as long. …
"From 1992 to 2006, the annual trade deficit soared from $39 billion to $762 billion. While it did so, unemployment fell 3 points. The trade deficit was $39 billion in 1992, the year unemployment peaked at over 7 percent. In 2006, when we had the biggest trade deficit ever recorded, unemployment was well below 5 percent.
"From 2007 to 2014, the annual trade deficit shrunk $200 billion. Unemployment soared then fell back. The smallest trade deficit in this period was recorded in 2009. The highest unemployment was also recorded in 2009."
It shouldn't be that hard to convince voters that "an expanding, vibrant American economy both creates jobs and boosts spending, including spending on foreign goods and services that raises the trade deficit. When jobs are lost and buying power declines, the trade deficit falls." And yet, to paraphrase Scissors, the politicians don't even try.
We therefore have a debate based entirely on a blatant misunderstanding of economic reality in which pols get a pass from both the mainstream media, which should know better (if political reporters talked to their own business reporters, it would help), and much of the conservative media, which is deliberately ignorant of basic economics while touting "conservatism," which derives its intellectual legitimacy from the efficacy of free markets.
This is not just exasperating; protectionism is harmful to American prosperity, upward mobility and wages. If we want to make America great, we should be creating free-trade zones wherever we can, boxing out the Chinese in Asia and boosting incomes throughout the Americas.
One can only hope that if Clinton is president she will throw some crumbs to Big Labor and make some tweaks to the Trans-Pacific Partnership, grabbing an easy economic and diplomatic win.
If Trump wins, maybe trade will be one of the dozens of things he lied about during the campaign and is smart enough to do a 180 on if elected. Congress, however, wallowing in ignorance and catering to the frightened masses, may be hard to convince.
After listening to and repeating so much economic nonsense for so long, it might be hard to convince them to do the right thing. Maybe Immelt and others in the business community should start speaking to Congress and educating the voters. If they don't do it, the protectionist infatuation will like continue.
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