Biden’s trade policy must focus on creating good jobs
As the United States finishes a contentious presidential election, it’s clear that the incoming Biden administration will face enormous economic challenges. More than 25 million workers are struggling due to the economic impact of the COVID-19 pandemic, and the Congressional Budget Office (CBO) expects this recession to last well into 2025. The new administration must come out of the gate focused on jobs, job, jobs. And the way to accomplish this is to forge new trade and currency policies that can create good-paying work for millions of families.
Even though Joe Biden prevailed in the election, exit polls showed him losing the white, working-class vote by 29 percentage points. This was an improvement over Hillary Clinton’s showing in 2016 — and explains Biden’s victories in several “Blue Wall” states. However, Biden substantially underperformed Clinton among non-white, working-class voters, especially those without college degrees.
There’s an important message here, especially since Democrats lost seats in the House while failing to recapture the Senate. Democrats must come to terms with the impact of globalization — which has devastated America’s working-class voters. The United States lost 5 million manufacturing jobs and more than 91,000 factories in the past 20 years. Globalization has also reduced median wages by roughly $2,000 per year for roughly 100 million working-class Americans. Voters in the upper Midwest have been particularly hard hit, and feel alienated from politicians in both parties — including Democrats allied with Wall Street.
Trump spoke directly to these voters’ pain. And while his trade policies have proved ineffective at lowering America’s trade deficit, he astutely made such concerns his signature message. At the same time, Biden and Wall Street Democrats have accumulated a long record of misjudgments on trade. Biden supported NAFTA in 1993, the GATT agreement in 1994 and China’s 2001 entry into the WTO — which resulted in the loss of 3.7 million U.S. jobs between 2001 and 2018. That’s one reason why voters distrust Biden and the Democrats on pocketbook issues — and remain unconvinced by the Democratic Party on trade.
In response, Biden must take a new approach in order to deliver tangible benefits for working-class voters. The first step will be “Do no harm.” Last summer, Biden promised the United Steelworkers that he wouldn’t consider any new trade agreements “until we’ve made major investments here at home, in our workers and our communities.” As president, Biden must hold to this pledge, including a dismissal of the Trans-Pacific Partnership (TPP) and other corporate-managed trade agreements.
Essentially, Biden must wipe the slate clean — and start with the currency problem currently crushing U.S. manufacturing. Right now, the U.S. dollar is overvalued by roughly 25 percent. In fact, since July 2014, the dollar has risen by nearly 21 percent, thanks to huge amounts of private foreign capital continually flooding America’s financial markets. This rising dollar is making America’s exports progressively more expensive —and also lowering the cost of imports.
U.S. manufacturers won’t find relief until the dollar falls some 25 to 30 percent. A bipartisan Senate bill introduced last year aimed to address this through a tax on foreign purchases of U.S. financial assets. Biden could use his executive authority under the International Emergency Economic Powers Act (IEEPA) to directly confront the dollar’s overvaluation. There’s precedent for this type of action, and currency expert Joe Gagnon suggested in 2011 that the U.S. could tax assets purchased by China and other countries. That would reduce overseas investment demand currently spurring the dollar upward.
If the dollar fell, U.S. exports would rise, along with prices for domestic commodities such as soybeans, steel and aluminum. These changes would begin to reverse the damage done to manufacturing and farming — where Trump’s policies actually increased America’s goods trade deficit from $792 billion in 2017 to $854 billion in 2019.
Economic Policy Institute (EPI) research suggests that realigning the dollar could create 3.5 million to 6.6 million new, good-paying U.S. jobs over the next four years. It’s why currency matters far more than tariffs, particularly when Trump’s Section 301 China tariffs merely shifted the global export picture. Yes, America’s goods deficit with China dropped $30 billion between 2017 and 2019. But total U.S. imports actually continued to grow.
It should be noted that Trump’s Section 232 tariffs on steel and aluminum were partially effective. The tariffs should be continued while the new administration formulates policies to address subsidized overproduction in China, Korea, Brazil and elsewhere.
China’s subsidies for its state-owned enterprises are particularly egregious. But since the United States has laws on the books to address predatory trade, Biden must vigorously enforce U.S. trade law to ensure that America’s manufacturers don’t suffer unfairly.
In the global arena, Biden must use America’s leverage to address wider concerns. This includes climate challenges – through the Paris Climate Accord – and fair labor standards. He must also revamp America’s corporate tax code to eliminate the profit-shifting that allows many multinationals to pay no corporate taxes.
Given that Biden is likely to be confronted by a Republican Senate, he’ll be hard-pressed to make immediate investments in renewable energy or advanced industries. However, the nation urgently needs an infrastructure overhaul, and there’s the potential for a bipartisan infrastructure bill. Trade comes into the picture here, too, since Buy America requirements could shore up domestic job creation. Passing a $1 trillion infrastructure bill could create 2.1 million to 3.8 million good jobs, including more than 700,000 direct and indirect jobs in construction and manufacturing. These jobs would serve both inner cities and rural areas, including disadvantaged minorities and small businesses.
To meaningfully help working Americans, Biden should reject the siren song of new trade and investment deals. He must forcefully reject the free trade ideology pursued by Wall Street globalists and commit to rebuilding America’s productive sectors. Creating good-paying jobs must become “job one” to help America’s working class get back on its feet.
Robert E. Scott is a senior economist at the Economic Policy Institute (EPI). Follow him on Twitter @RobScott_epi.
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