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Sat, Feb 18, 2017 - Page 9 News List

Trump’s moves toward ‘neo-protectionism’ will end up hurting the US

The challenge facing workers in the US — and other developed nations — today comes not just from their rivals in emerging economies, but from robotics and artificial intelligence, and protectionist regulations will not help them

By Kaushik Basu

Illustration: Tania Chou

US President Donald Trump is about to make a policy mistake. It will hurt — particularly in the short run — nations across sub-Saharan Africa, Latin America and Asia, especially emerging economies like China and Sri Lanka (which run large trade surpluses against the US) and India and the Philippines (major outsourcing destinations).

However, none will suffer more than the US itself.

The policy in question is a strange neoliberal protectionism — call it “neo-protectionism.”

It is, on the one hand, an attempt to “save” domestic jobs by slapping tariffs on foreign goods, influencing exchange rates, restricting inflows of foreign workers and creating disincentives for outsourcing.

On the other hand, it involves neoliberal financial deregulation. This is not the way to help the US working class today.

CHALLENGES

US workers are facing major challenges. Though the US currently boasts a low unemployment rate of 4.8 percent, many people are working only part-time, and the labor-force participation rate (the share of the working-age population that is working or seeking work) has fallen from 67.3 percent in 2000 to 62.7 percent last month.

Moreover, real wages have been largely stagnant for decades. The real median household income is the same today as it was in 1998. From 1973 to 2014, the income of the poorest 20 percent of households actually decreased slightly, even as the income of the richest 5 percent of households doubled.

One factor driving these trends has been the decline in manufacturing jobs.

Greenville, South Carolina, is a case in point. Once known as the Textile Capital of the World, with 48,000 people employed in the industry in 1990, the city today has just 6,000 textile workers left.

However, the economics driving these trends is far more complex than popular rhetoric suggests.

TECHNOLOGY

The major challenge facing labor today lies only partly in open trade or immigration; the much bigger culprit is technological innovation and, in particular, robotics and artificial intelligence, which have boosted productivity substantially.

From 1948 to 1994, employment in the manufacturing sector fell by 50 percent, but production rose by 190 percent.

According to a study conducted at Ball State University, if productivity had remained constant from 2000 to 2010, the US would have needed 20.9 million manufacturing workers to produce what it was producing at the end of that decade.

However, technology-enabled productivity growth meant that the US actually needed just 12.1 million workers. In other words, 42 percent of manufacturing jobs were lost during that period.

While some forms of targeted protection may be able to play a role in supporting US workers, neo-protectionism is not the answer.

It would not just be ineffective; it would actually do substantial harm.

The simple fact is that, thanks to everything from efficient and safe shipping lanes to digital technology and the Internet, a large pool of cheap labor is available to global producers. US attempts to stop domestic firms from tapping that resource would not change that reality, or stop companies elsewhere from doing so.

As a result, US producers would become less competitive compared with those from, say, Germany, France, Japan and South Korea, while financial-sector deregulation would exacerbate economic inequality within the US.

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