Theory of trade equilibrium’s questions for the second debate
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A review of the facts presented below shows some alarming trends in the U.S. economy and its declining job market. According to the Department of Labor, between 2005 and 2015, for those 16 years and older:

  1. Non-institutional population increased from 226.1mm to 250.8mm.
  2. Civilian labor force increased from 149.3mm to 157.1mm.
  3. Civilian labor participation rate declined from 66.0% to 62.7%.
  4. Employment to population rate declined from 62.7% to 59.3%.
  5. Number of unemployed increased from 7.6mm to 8.3mm.
  6. Official unemployment rate increased from 5.1% to 5.3%.
  7. Number of people not in labor force who are looking for a job increased from 5mm to 6.1mm.

These data show that between 2005 and 2015, proportionately,

  1. The number of Americans with jobs has declined, and the number of people without jobs has increased. Consequentially, a declining number of Americans with jobs are supporting an increasing number of fellow Americans without jobs.
  2. The number of people not in the labor force, but actively looking for a job, has exploded from 5mm to 6.1mm.
  3. The two together are reducing our tax collections, increasing tax payments (unemployment benefits, etc.), and increasing budget deficits. 

During their first presidential debate, Mrs. Clinton or Mr. Trump didn’t provide any specific meaningful solutions to these problems. I am hoping that they would address them in their second debate. Here are my questions to them.

To Mrs. Clinton

You recommend to: (a) Appoint a Trade Prosecutor to enforce trade agreements; (b) Stop China’s currency manipulation; and (c) Renegotiate trade agreements to make them enforceable. You recommend agreements that would create good paying jobs. (Source: Davidson, USA Today, Aug. 14, 2016.)

Madam, have you done any detailed analyses to show how these broad strategies would solve the specific problems stated above? And do you know how many years would it take to solve them? Are you aware of the disputes between the U.S. and China about renewable energy going on for years?

Mrs. Clinton, please also consider the benefits of using the trade equilibrium model, as presented below, in reducing trade deficit and increasing jobs.

To Mr. Trump

You recommend using techniques such as follows to narrow our trade deficit, increase domestic production, and get a fair deal for workers: (a) Apply tariffs and duties to countries that cheat; (b) Label China a currency manipulator; and (c) Bring trade relief cases to the WTO. (Source: Trump website.)

Have you done any detailed analyses to show how your broad strategies would solve the specific problems stated above? Also, have you thought of the possible trade wars between the U.S., China, and Mexico that your strategies would create? Have you calculated the resultant job losses it would create in America?

Mr. Trump, please also consider the benefits of using the trade equilibrium model, as presented below, in reducing trade deficit and increasing jobs. 

TRADE EQUILIBRIUM MODEL

Writing since 2004, I define trade equilibrium (Bhandari, JIBR 2014) as a situation when trading among different countries is such that the trading partners remain generally deficit-free from one another over a cycle of every 2-3 years. This theory has two major goals: (a) to stop exporting of additional American jobs, and (b) to regain the American jobs already exported by legally requiring the dollar/trade surplus countries to eliminate their surplus over a ten-year period by buying American products (goods and services).

Employment & Economic Effects

The absence of new trade deficit would save three American jobs per $1mm of such absence. And, the emergence of new trade surplus would create three American jobs per $1mm of such surplus. (Bhandari, The Hill, Aug. 21, 2016). With about $500 billion coming back home every year, about 1.5 million net new jobs would be created annually.

The 6.1mm people looking for a job, mentioned above, would all have jobs at decent wages in about four years. The number of Americans with jobs, supporting the number of those unemployed, would increase. The GDP, personal income, and tax revenues would all grow. Tax payments and federal deficit would decline.

According to the OECD (Taxing Wages, 2016), an average U.S. wage worker made an average of $54,977 in gross wages in 2014; and paid $8,631 in average income taxes and paid $8,741 in average payroll taxes. Thus, under trade equilibrium, these 6.1 million people would earn $335 billion in gross pay; pay $$52.6 billion in income taxes; and pay $53.2 billion in payroll taxes. Annually!

WHERE WOULD THE DOLLARS COMING HOME GO?

Subject to the American law, the foreigners with surplus dollars would have to buy American goods or services as they chose. These exports would create American jobs in those areas. American imports of lower priced foreign products would help American consumers and producers. The resultant geometric and multi-generational multiplication of free and fair trade between countries will give birth to the next economic revolution—effects of which would be many times more than that of the industrial and the Internet revolutions. 

CLOSING THOUGHTS

I am discussing my trade-equilibrium model as an academic—without reference to any political view. Both Mrs. Clinton and Mr. Trump should consider it for reducing our trade deficit and increasing jobs and wages.

Narendra C. Bhandari, Ph. D., is Professor of Management at Pace University’s Lubin School of Business in New York.


The views expressed by authors are their own and not the views of The Hill.