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In the name of economic development

Will Trump’s tariff war with China help in creating jobs in the US?

In the name of economic development

Donald Trump voiced the real concerns of many Americans when he spoke of the need to bring jobs to communities and to end unfair trade deals. By blocking the Trans-Pacific Partnership, pushing a re-negotiation of NAFTA, and increasing tariffs on a range of imports, Trump has appeared to finally take the needs of unemployed and underemployed workers seriously.

Some unions have been calling for tariffs for years, most notably the United Steelworkers. While Obama ran in 2008 on a promise to renegotiate NAFTA, he never did so, and in fact, became a relentless proponent of expanding "free trade."

So is Trump the worker's hero? Will increased tariffs return jobs to the US? The Left has been weak on this issue. On the one hand, we need to take economic development and job creation seriously. Workers are suffering. Even though official unemployment rates are low, more and more of the jobs people hold are low-wage, insecure, non-union, and dead-end.

The Left lacks a real programme to address the real concerns of those impacted by trade deals. We need to better understand the history of tariffs and trade, and we need an international vision for economic development.

Most rich countries have used import tariffs as a way to develop their own industries. Alexander Hamilton argued in the late 1700s for using tariffs to develop "infant industries" until they grew large enough to compete in a global market. In general, the idea was to allow raw materials in at a lower tax. The import tariff on intermediate or finished goods was much higher. This allowed manufacturers to import cheap inputs from other countries, and then manufacture the items domestically. Most of the profit in good comes in the production stage. The goal for countries is to be able to "move up the economic ladder," where they can go from raw material exporters (at low-profit rates), to finished goods exporters (at much higher profit rates).

Marx explained this process through the concept of socially-necessary labour time or the average amount of labour time needed for a worker to produce a good for exchange. There is relatively little labour time needed to harvest a peanut and more labour time needed to manufacture peanut butter. Marx explained this process through the concept of socially-necessary labour time or the average amount of labour time needed for a worker to produce a good for exchange.

The United States relied heavily on high import tariffs on a range of goods, for many decades. According to economist Ha-Joon Chang, the US had some of the highest tariffs in the world from 1816 to 1945. This can, of course, create strong tensions between different sections of the ruling class. For example, Southern plantation owners wanted low tariffs so that they could easily export raw cotton and import manufactured goods. Northern manufacturers wanted high tariffs on manufactured imports.

But tariffs were not the only tool governments used. Chang points out that every rich country became rich by using a range of government interventions. Tariffs are just one tool. Other tools include direct subsidies to firms, public investment in infrastructure that allows industries to develop and transport goods, public investment in research and development, public schools to train workers, financial regulations, banking systems to generate savings available for investment, nationalisation of industries, and more. Governments have also used more insidious tools to develop their economies, including war, colonisation, industrial espionage, and the trade in human beings forced into slave labour.

Many economists from a range of perspectives have argued the world as a whole benefit from "free trade": the idea that countries should be able to exchange goods and services without tariffs or other disincentives or barriers. The "free trade" school of thought has dominated economics since WWII. The General Agreement on Tariffs and Trade (GATT) was established just after WWII as a diplomatic forum where states could meet and agree to reduce tariffs. In 1995, the World Trade Organisation (WTO) was formed, with a mandate to govern the rules of trade between states, with the "goal of ensur[ing] that trade flows as smoothly, predictably, and freely as possible."

Alongside the WTO, countries signed "free trade" agreements and bilateral or multilateral investment treaties, designed to reduce tariffs further, and particularly to reduce other "barriers" to trade. The US signed its first free trade agreement in 1985, with Israel, and has since signed bilateral or multilateral agreements with 19 other countries.

The US now has a highly complex tariff schedule. There are three different rates of duty — the general rate, a "special" for "free trade" or "generalised system of preference" partners, and a third rate that applies to Cuba and North Korea. Some products are free: there is no import tariff. Fresh plantains, for example, can come in with no tariff even from Cuba or North Korea. Dried plantains, however, require some processing. They have a 1.4 per cent tariff for the general rate, free for the special rate, and 35 per cent for our "enemy" countries. Chainsaw blades have a 7.2 per cent general tariff, free for the special rate, and 60 per cent otherwise. Meanwhile, circular saw blades are free for the general and special rate, and 25 per cent otherwise.

All of this highlights the reality that tariffs are greatly influenced by political processes as much as economic ones. Employer associations, powerful corporations, members of Congress, unions, and consumers have all lobbied to set tariff rates for each of the tens of thousands of products. There is no other way to explain why tariff rates differ for forks versus spoons, or for almonds versus pistachios versus pecans versus chestnuts.

Another political consideration is how other countries respond to our tariffs. If we raise tariffs on Chinese steel, China might raise tariffs on our wheat. Since the end of World War II, most Western countries have agreed to keep tariffs low and avoid this sort of scenario. In fact, tariffs have been so low that "free trade" agreements haven't lowered them much; the difference between, say, 1.4 per cent and zero is trivial.

This raises the question: why has there been so much uproar about free trade agreements, since at least the "Battle of Seattle" in 1999? The answer is that modern "free trade" agreements aren't really about tariffs. Rather, they're about loosening restrictions on flows of international investment, which makes it easier for Western companies to offshore jobs (and hide their profits from the tax authorities).

Trade agreements have also been about lowering "non-tariff barriers to trade." These include things large sections of the population support, such as environmental protections, labour laws, or licensing restrictions (such as against genetically modified seeds). Many of these protections have been weakened or voided in the name of "free trade."

But Trump's stance on tariffs and trades appeals to workers who have lost their jobs and are looking for hope anywhere they can. It also plays with some of his supporters who are motivated more by nationalism and racism than economic concerns, so the fact that tariffs won't bring back many jobs doesn't matter to them. And while tariffs are a real problem for some of the capitalist class, not all are directly impacted, and for all of Trump's talk of NAFTA re-negotiation, his plans will leave the bigger problems with "free trade" (unregulated cross-border money flows and erosion of environmental and labour protections) untouched.

Tariffs are not the only economic development tool. People may blame outsourcing or unfair trade, but, in fact, there are many policy options available to us to try right now to create good jobs. For example, one argument for steel tariffs was based on national security. But if security is really our concern, it is a mistake to leave vital production of things like steel, oil, medicine, and food in the hands of unaccountable private corporations. Create public entities that can do this!

There is a wide range of policy options that we could pursue to create jobs and to make bad jobs into better ones. Our demands must focus on ways to create jobs that also undercut the power of multi-national corporations to pit workers against one another. The principle must be job creation built on solidarity — with other workers, with workers in other industries, and with workers overseas — not competition.

(Courtesy: People's World Stephanie Luce is a professor at the School of Labor and Urban Studies/CUNY. She is the author of "Labor Movements: Global Perspectives" and "Fighting for a Living Wage." Views expressed are strictly personal)

Stephanie Luce

Stephanie Luce

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