From the TUC

How can we respond to Trumponomics?

01 Feb 2017, by in Economics

How to respond to the populism and protectionism of Donald Trump will be one of the biggest challenges facing mainstream economists and politicians in 2017. A good starting point for that debate might be Martin Wolf’s wide ranging article in today’s Financial Times, ‘Donald Trump’s tough talk will not bring US jobs back’(£). Wolf’s argument has gaps and there are parts I take issue with, but this fascinating piece at least gets the debate under way. His analysis is also very relevant to issues facing the UK economy today.

Wolf isn’t afraid to mince his words from the start: “Blame foreigners first. This strategy is always the companion of aggrieved nationalism.” He then gets down to business. “At the heart of the US debate on trade policy is the story of jobs in manufacturing.” It is hardly surprising that a decline in the share of manufacturing jobs from about 30 per cent of total employment in the early 1950s to just over eight per cent at the end of 2016 has caused serious problems in the US Rust Belt and elsewhere, just as manufacturing communities in the UK have suffered as that industrial sector has declined in this country.

Wolf is right to say that as US manufacturing has declined, other jobs have taken its place. Again, this is true in the UK, where we have nearly full employment. It may be the case, as he says, that “In 1950, employment in manufacturing [in the US] was 13m, while that in the rest of the economy was 30m. By the end of 2016, it was 12m and 133m respectively.” But that is not the end of the story, as the replacement of manufacturing jobs by service sector activity is not the end of the story in the UK. We must ask: what is the nature of those replacement jobs? Are they high skill, high value jobs that pay a proper wage? Are they even lower skill jobs that nevertheless provide a decent income and a sense of pride and accomplishment to those workers carrying them out? Or are they casualised, bargain-basement jobs stripped of all dignity? And where are they? Are they concentrated in relatively wealthy parts of the country, leaving other communities with a sense of desperation?

Martin Wolf describes the rise in US manufacturing output, as employment has fallen. A similar story, again, exists in the UK, as the astoundingly successful British motor industry shows. That increase in output is mainly due to automation, surprisingly absent as a topic from Wolf’s otherwise comprehensive analysis. Automation isn’t going anywhere and the next stage – the so-called ‘Fourth Industrial Revolution’ – is upon us. But unless we get to grips with its potential employment effects, are we not storing up more problems for the future? (To be clear, I’m not arguing against so-called digital manufacturing, which could bring enormous benefits, especially to those that seize the opportunities early. But it needs to be looked at holistically.)

Wolf takes us onto familiar ground in his discussion of the recent stagnation in productivity, including in manufacturing. No apology needed – as Paul Krugman wrote in 1994, “Productivity isn’t everything, but in the long run it is almost everything.” But Wolf also makes one or two assumptions, without providing the evidence to back them up. “Even if the [US] trade balance had remained unchanged in the early 2000s, there would still have been a big reduction in the share of employment in manufacturing from the late 1990s. For that, the main reason was weak demand…” Says who? It might be that weak demand coincided with stagnant employment, but this does not prove causality. If demand for US manufactured goods fell during two recessions, why did it not pick up again during economic recoveries?

I think Wolf is on firmer ground when he argues that the North American Free Trade Agreement and China’s accession to the World Trade Organisation played only a modest role in the rise in the US trade deficit. Furthermore, as the TUC report ‘The Way of the Dragon’ highlighted, a better way to respond to the rise of China and East Asia is to develop a sophisticated export strategy, rather than resort to protectionism, which all the evidence shows will leave us worse off in the long-term.

Martin Wolf is correct that import competition is often geographically concentrated and an intelligent industrial strategy, which emphasises strategic sectors, the assets and opportunities of regions, and the importance of quality jobs is the best way to tackle this problem. Indeed, Wolf goes on to argue for “the need to sustain demand and so ensure that new jobs replace the old ones in the economy as a whole.” This is key. Those jobs must not just be there, they must be of a high quality. This will be a key ask of the TUC when we respond to the UK government’s Green Paper on Industrial Strategy.

Finally, Martin Wolf is spot on to argue that “the policies proposed by Mr Trump and the congressional Republicans – a combination of piecemeal protectionism with a large fiscal stimulus as well as elimination of much of the social safety net – is likely to impose large costs on unprotected workers, while leaving supporters even more desperate.” The best way to support those unprotected workers, as well as those desperate supporters, is to develop strong trade unions. Our sisters and brothers across the pond face an enormous battle. But in my lifetime, unions have never been more necessary.

One Response to How can we respond to Trumponomics?

  1. Peter Brooke
    Feb 7th 2017, 5:17 pm

    Tim Page says: ‘Furthermore, as the TUC report ‘The Way of the Dragon’ highlighted, a better way to respond to the rise of China and East Asia is to develop a sophisticated export strategy, rather than resort to protectionism, which all the evidence shows will leave us worse off in the long-term.’
    What evidence? And what is meant by ‘worse off’? Surely its impossible to imagine any sort of functional socialism, or indeed any elementary keynesianism, outside of an economy that is to some extent at least closed, that is to say, in which the money in peoples pockets goes on goods that are produced within the economy.
    The EEC/EU wasn’t just a ‘single market’ (though that’s what British influence tried to make it). It was also a protected area and we now risk losing those protections – both in terms of tariffs and of questions of quality. The situation for agriculture is particularly dangerous.
    The ideology of free trade produces the ridiculous situation in which, to put it crudely apples from Britain go to France and apples from France go to Britain with all the pollution that the necessary transport implies. Tim Page ends with a pious exhortation on the need for unions (this is the TUC blog after all). But what use are unions when work can be offshored to places where the labour is cheaper?
    What we need to develop now, especially in the conditions of brexit (which I, favouring a protected Europe, opposed) is an intelligent protectionism which is prepared to run the risk of a lower GDP, lower rate of productivity, in exchange for a better quality of life.