Trump Threatens The Clintons’ Odious Economic Order

Free trade is the economic issue Donald Trump has rightly made the centerpiece of his campaign – and on which he’s been consistent for many years. No issue better illustrates how the elites’ and most voters’ interests collide. 

President Bill Clinton and Hillary brought the pernicious paradigm of free trade and an unleashed financial sector to denouement in the 1990s. Robert Rubin, who had been co-chair of Goldman Sachs before becoming Clinton’s Secretary of the Treasury, brazenly instructed members of the incoming administration that the rich “are running the economy and make the decisions about the economy” (though not recorded, Rubin undoubtedly added, “And if we help Wall Street, they have a ton of dough with which to help us”).

An aside for context: the oft-exalted Rubin would go on to become a key member of Citigroup’s leadership team, heaping up huge bonuses as the bank gorged on sub-prime mortgage instruments. Rubin rode Citi all the way down through the ’08 crash and, conveniently, helped the institution – which should have been dismembered and dissolved – amass billions in capital from taxpayers. This further insulated him and other Citi bigwigs from the consequences of their ruinous decisions and deplorable dereliction.

With hearty encouragement from Rubin and his cadre of Wall Street cronies, President Clinton enacted the Financial Services Modernization Act of 1999, which repealed a number of Depression-era financial regulations. Clinton also forcefully pushed Senate ratification of the North American Free Trade Agreement (NAFTA) and was a huge booster of opening trade with China - moves also celebrated by Wall Street and big corporations. He signed the bill normalizing trade relations with China and laid the foundation for its entry into the World Trade Organization (WTO) the year he left office. China showed its gratitude by illegally funneling hundreds of thousands of dollars (and those are just the amounts government investigators were able to uncover) to the Clinton campaign coffers. Once Bill left office, the Bill and Hillary Clinton foundation became the new vessel for Chinese largess. 

Meanwhile, Wall Street fat cats, greatly enriched by Clinton's policies and the Clinton-reappointed Alan Greenspan's financier-friendly Fed, upheld their end of the bargain, becoming (and remaining) the Democratic Party's most prodigious contributors. The candidate Trump has aptly dubbed “Crooked Hillary” has continued the family tradition of Wall Street enabling and groveling, as exemplified by her lavishly compensated speeches to Goldman Sachs and other financial behemoths. Despite Bernie Sanders' attempts during the primary campaign to shame HRC into releasing the transcripts of those speeches, they remain cloistered – far better protected than were our state secrets on Hillary’s private email server.

The elites and Team Hillary are rightly terrified of Trump because he’s a real rebel candidate who can actually win.

Hillary and the financial and political patricians to whom she’s beholden are savoring the fruits of the status quo while American workers are being hosed. That’s why, despite decades of free trade disinformation from the establishment in both parties, voters are backing Trump’s long-held anti-free trade views. According to a March Bloomberg Poll, almost two-thirds of Americans now favor more restrictions on imported goods instead of fewer. And the facts are on their side.

The charts below depict an American economic horror story that commences in the late 1970s – when the United States began running trade deficits for the first time in nearly a century. 

 

The contraction in labor force participation, the collapse of salaries and wages as a percentage of GDP and the historically high level of profits, the dramatic distension of American income inequality – so often treated as a perfect storm of mysterious origin by economists and politicians – are, in fact, concomitant with our monstrous trade deficits.

Establishment leaders frequently ascribe most of these catastrophic metrics to rapid advances in technology. That’s an odd theory, as there was quite an impressive array of technology introduced in the trade deficit-free 25 years from 1948 through 1973, when worker incomes were far higher – and corporate profits far lower – as a percentage of GDP. And economic growth was, on average, much more robust than the barely above two percent we’ve endured over the past decade – an unprecedented duration of such weak GDP growth.

But despite this plethora of deeply disquieting data, the malevolent mirage that was Clintonomics continues to be touted by Hillary and extolled by the elites. Meanwhile, establishment-employed “economic luminaries” are attempting to discredit Trump’s ideas by emanating grandiloquent garbage masquerading as policy analysis.

Early in Trump’s campaign, Republican economists Larry Kudlow and Steve Moore penned an alarmist attack on Trump’s trade and immigration platform in National Review. For an article crafted by two of the party’s smartest folks, it was an astoundingly lame piece of work which I readily debunked. Moore has since attenuated his enthusiasm for free trade and become a key Trump economic advisor.

Then, in late March, The New York Times – a clarion of anti-Trump trumpery from the left – published, “What Candidates Are Saying by Harping on Trade Deficits,” by Senior Economics Correspondent Neil Irwin. This appallingly pretentious, fallacious tome epitomizes the American establishment’s free trade mendacity. It was undoubtedly an enjoyable read for The Times’ Wall Street friends and the struggling newspaper’s financial rescuer and largest shareholder, Mexican billionaire Carlos Slim. Slim profited handsomely from NAFTA, and the huge run-up in U.S. stock prices fed by foreign investors flooded with U.S. trade deficit dollars. Slim also has deep ties to Hillary and her family “foundation.”

Irwin’s archetype of pro-free trade propaganda starts with two Orwellian propositions, “Trade deficits are not inherently good or bad; they can be either, depending on circumstances. The trade deficit is not a scorecard.” And, “What’s more, eliminating the trade deficit would not, on its own, make America great again.”

Based on the charts, that’s akin to claiming, “Cigarette smoking isn’t inherently good or bad; it can be either.” After all, smoking relieves stress and promotes weight loss! The huge numbers of premature smoking-related deaths save us a fortune in Social Security and Medicare outlays! And quitting smoking “on its own” won’t make you healthy again, so why bother?

Contrary to Irwin’s idiocy, given its deleterious impact on American jobs and wages, our country must consider the trade deficit a scorecard. I challenge him to name another large, prosperous nation which has maintained a massive trade deficit for nearly half a century.

Our overall 2015 real dollar non-petroleum trade deficit ($663.9 billion) was the highest on record. As was our deficit with Germany ($74.2 billion), South Korea ($28.3 billion) and the European Union ($153.3 billion). And we still run a $68 billion trade deficit with Japan.

But China accounts for more than half of our yawning trade gap – $365.7 billion in 2015 – also a record. That’s a billion dollars a day – to put it in perspective, this is considerably more than half our annual defense budget.

Trump has basked in China’s attacks on him for calling out that nation’s devious trade practices. “I’m so happy China is upset with me,” he's crowed. “They have waged economic war against us…it’s been the biggest theft.” The frightful data below affirm that Trump wasn’t engaging in hyperbole. 

 The U.S. has suffered net job losses of over two million stemming from the rise in import competition from and offshoring to China since it was admitted to the World Trade Organization in 2001. Even longtime free trade champion The Economist recently concluded that the data, “provide convincing evidence that workers in the rich world suffered much more from the rise of China than economists thought was possible.”

While America’s free trade sellout has been dreadfully destructive to our country as a whole, it’s been cataclysmic for cities and towns that were the industrial centers of our country. Once as vibrant as is Silicon Valley today, these former manufacturing hotbeds in the Midwest and Northeast are now decrepit and dysfunctional. And no group in America has been more adversely impacted than African Americans living in those inner cities.

Henry Ford, the father of automobile mass production, was also one of the first large employers to hire African American workers. The rest of the automobile industry followed, which contributed mightily to the massive migration of African Americans from the Jim Crow south to Detroit and other northern industrial cities. This did much to germinate the black middle class in America. But the decline of American manufacturing – caused by our idiotic and immoral free trade policies – hit the black community especially hard. In 1975, 40 percent of young Midwestern black men were employed in manufacturing; by 1990, that proportion had dropped to just 10 percent.

And the Clintons’ disastrous Wall Street-designed trade policies, favoring China, Mexico and many other countries, further ravaged the African American community. African-American family incomes, already considerably lower than their white cohorts, are down by about $2,200. The wealth gap between African Americans and whites has widened tremendously, and African-Americans have regained far fewer of the jobs lost in the Great Recession than other Americans.

So, while China, Mexico and South Korea have gained millions of jobs since the Clinton era commenced in the ‘90s, African American workers have been devastated and opportunities for their children destroyed.

The elites and establishment news media constantly talk about “White Working Class Voters.” When was the last time you heard the term, “Black Working Class Voters”? That speaks volumes about how insensitive and out of touch America’s establishment media really is. Hillary and her elite patrons don’t want voters to know this, but black working class workers and white working class voters have a lot in common: both are being racked by a rigged system.

China, like longtime export titan Japan, systematically devalues its currency – in effect, discounting the cost of wages and products in that country relative to the U.S. dollar. It has a labyrinth of written and unwritten policies to minimize U.S. imports. Though its economy is second in size only to ours, incredibly, we export far less to China than we do to Mexico and Canada, each a fraction of China’s size. American companies wanting to sell autos, aircraft, machinery and other high value goods in China must manufacture there. And, inevitably, that involves making our valuable intellectual property available to our Chinese competitors.

How long will America’s now world-leading aviation industry, America’s new industrial hubs in the south – indeed, how long will Silicon Valley itself – be safe from the depredations of unchecked, unethical competition from China and other nations?

Now Democrat and Republican establishmentarians are pushing The Trans-Pacific Partnership (TPP), crafted while Hillary Clinton was secretary of state. This trade agreement with Pacific Rim nations, not including China, is another U.S. trade disaster in the making. It would result in wage losses for the vast majority of U.S. workers. To highlight the perfidy of the claims that TPP would strengthen America vis-à-vis China, according to the agreement, an auto with 55% Chinese content could be considered to be Made in America or Made in the TPP. This allowable non-TPP content is considerably higher than the 37% permitted in NAFTA, which itself has hardly been a boon for U.S. manufacturers. China is already using this Trojan Horse technique with steel, which its largely state-owned mills continue to turn out in abundance, despite an international glut, sapping domestic steel industries in the U.S. and across the globe.

While Secretary of State, Hillary effusively described TPP as “The gold standard” of trade agreements. But, near the end of the primary season, following withering assaults on her free trade position from Bernie and Trump, Hillary cravenly withdrew her support for TPP. Soon thereafter, longtime Clinton courtier, Virginia governor Terry McAuliffe, candidly but damningly asserted that Clinton would again support TPP if elected.

In defending our country’s indefensible trade policies, Irwin’s Times piece employs the model of "BananaLand" and "CarNation.”

Imagine a world where there are only two countries, and only two products. One country makes cars; the other grows bananas.

People in CarNation want bananas, so they buy $1 million worth from people in BananaLand. Residents of BananaLand want cars, so they buy $2 million of them from CarNation.

That difference is the trade deficit: BananaLand has a $1 million trade deficit; CarNation has a $1 million trade surplus.

But this does not mean that BananaLand is “losing” to CarNation. Cars are really useful, and BananaLandites got a lot of them in exchange for their money.

This puerile rendition of economist David Ricardo’s theory of “comparative advantage” (“competitive advantage” in modern parlance) is often invoked by other free trade propagandists – but betrays the absurdity of the entire free trade case.

First, where does "BananaLand" obtain the $1 million each year to cover its trade deficits with "CarNation"? It must forgo $1 million in other expenditures and investments and/or borrow the money - perhaps from "CarNation" itself - and/or sell valuable assets to those in other countries. Any "BananaLand" debt to cover the "CarNation" trade deficits will either require reducing future investments and consumption or force "BananaLand" to print more of its money to pay off the debt - which leads to "BananaLand" inflation and eroded purchasing power. Assets sold to fund import consumption will cause a huge future opportunity cost for "BananaLand."

And, more fundamentally, what country wouldn't prefer to have an economy built on auto production, with its attendant well-paying jobs and spin-off economic benefits, instead of banana production? And what sane nation would consciously morph from car-based to banana-based? In effect, America is doing exactly that, becoming "BananaLand" – de-industrializing and incurring enormous trade deficit debt due to cataclysmic Clintonian trade and economic policies. Policies which were also championed by most Republicans and continue to be lauded by Irwin and his elite patrons.

And, as China, Japan and other export powerhouses demonstrate, Irwin’s cute little model becomes even more specious when competing nations engage in rampant currency manipulation, import suppression and export-driven industrial policies. And to make matters worse, as we'll see, how our trading partners spend the stockpiles of dollars they amass in trade surpluses can have huge – and often very negative – consequences for the United States.

A lower cost labor force is not a “competitive advantage” for a country any more than it is for a company. Nordstrom’s, Google, Starbuck’s and Apple are famous for expending more for employee pay and benefits than their cohorts. It seems to be working for them.

Despite an overweening government and onerous labor laws, Germany is the economic dynamo of Europe and one of the most formidable exporters in the world, with a huge trade surplus. This certainly hasn’t been brought about by low wages – German factory compensation is nearly one third higher than in the U.S. Germany has encouraged its industries to aggressively export while training and nurturing workers.

In addition, Germany effected an artful currency manipulation of its own by driving adoption of the Euro. This enabled the country to effectively devalue its currency – which would have been politically impossible with the Deutsche Mark – making its exports cheaper and, simultaneously, solidifying German hegemony over the European economy.

Clearly, while the U.S. continues its economy-imploding iteration of globalism, China and Germany – along with Japan, South Korea and many other countries – are ascending by practicing mercantilism. As Trump has repeatedly and vociferously stated, it’s time for the U.S. to get smart.

As I outlined in my rebuttal to Kudlow’s and Moore’s op-ed, I submit that the United States’ unique combination of rule of law (once it resumes), capacity for innovation, infrastructure, natural resources, diversity of people and culture gives us a competitive advantage in virtually every area of economic endeavor. That’s not jingoism, it’s demonstrable. For instance, given the huge technological leaps in 3-D printing and advanced robotics germinated at American universities and research labs, there’s no reason iPhones can’t, in the foreseeable future, be fabricated here instead of assembled by thousands of Chinese workers at Foxconn. All our “stuff” – from cars to computer chips to kitchen appliances – have to be manufactured somewhere. Why isn’t our government doing everything possible to collaborate with our companies and internationally-envied educational and research institutions to make it here?

When U.S. jobs disappear or aren’t created due to hordes of low cost workers accessed overseas, enormous economic and social problems arise in our country that overwhelm what American consumers gain through lower priced imported goods. 

As the chart shows, means tested welfare spending began mushrooming in tandem with our trade deficits, despite the much-ballyhooed “Welfare Reform” passed under Bill Clinton. And Social Security Disability spending is rocketing, despite dramatic improvements in workplace safety.

What Trump intuitively gets – and our elites have long only paid lip service to – is that America needs to start treating its people as our greatest competitive advantage. Our citizens are devoted to this country, share our values, support our religious institutions and charities, raise our children. Keeping American workers working is a sound investment in a valuable economic asset – and social stability. A job isn’t just a production input. It isn’t just a livelihood. For most people, a job is life.  

And, except for those fortunate few who come from well-heeled families or have ready access to capital, having a sufficiently paying job is the crucial financial foundation for starting a business. The dwindling of robust middle income jobs and the stagnation in worker incomes in our era of trade deficits have eroded American entrepreneurship. Start-up density (new employer businesses divided by the total population) is far lower than it was in the late 1970s and well below typical historical rates. Since new small businesses are the driving force in our economy, this paucity of startups is undoubtedly a big reason for America's protracted period of anemic growth.

It’s time that we reprise a simple, central theory that used to be Republican – not just Trumpian: America has to work for our workers, not just our executives, investors and political class.

A U.S. market with fairer foreign competition hardly gives our businesses a free ride. Unlike the state-dominated economy in China, the American domestic marketplace is brutally competitive. Our consumers will still assiduously price shop. Walmart and Amazon will still grind down suppliers. But, without the easy availability of dirt-cheap foreign labor, it will be more financially advantageous for U.S. manufacturers to enhance worker training while developing ingenious ways to achieve efficiencies. And, unlike China, we don’t have teems of people pouring into our cities from rural areas looking for jobs, so rationalizing our trade policy can make an impact in a few years, not decades.

Returning to Irwin’s piece in The Times, after insulting his readers’ intelligence with economic sophistry, he lapses into diplomatic lunacy. Irwin ominously warns that staunching the bleeding of U.S. trade deficit dollars to other countries would threaten the dollar’s global primacy as a currency, impairing our ability to conduct foreign policy and impose economic sanctions. This canard would be laughable if it wasn’t so deceitful.

As Irwin must know, the U.S. dollar became globally preeminent shortly after World War I and dominant after the Bretton Woods Agreement near the end of World War II – more than 30 years before America began running trade deficits. Somehow, during those trade deficit-free decades, the U.S. managed to achieve the highest standard of living in human history while serving as the unquestioned leader of the free world.

The sheer size of the U.S. economy, its liquidity, stability and relative transparency and our government's peerless creditworthiness, make the dollar an indispensable safe haven for foreigners. This, along with the enormous scale of our financial infrastructure and our military supremacy – not our trade deficit – are why the U.S. dollar continues to occupy a commanding position among global currencies.

In fact, far from bolstering the dollar’s international standing, our trade deficits are dangerously destabilizing. According to a Georgetown University study, our gargantuan global trade imbalance may have been a key cause of the 2008 financial crash and the subsequent Great Recession. The paper quotes former Federal Reserve chairman Ben Bernanke as stating, “It is impossible to understand this (financial) crisis without reference to the global imbalances in trade and capital flows that began in the latter half of the 1990s.” Bernanke goes on to say, “the global imbalances did not cause the leverage and housing bubbles, but they were a critically important co-determinant.”

In addition to inflating financial bubbles, that surfeit of U.S. trade deficit cash from overseas is the source of other serious economic distortions that do long term damage to our country. Much of that money pours into U.S. treasury debt, which keeps the federal government’s borrowing costs artificially low – camouflaging the true cost of our government and obscuring the calamitous consequences of its burgeoning debt. And the proceeds from our monstrous trade deficits are used to acquire valuable U.S. assets, including manufacturing plants that can be shut down or hollowed out to accommodate the desires of the foreign owners (many of which are controlled by their governments); buy high tech firms possessing processes and patents that can be transferred to the host country – eliminating a U.S. competitive advantage and putting our national security at risk; and purchase residential real estate in New York, Los Angeles, the San Francisco Bay area and other alluring locales, which further increases the already prohibitive cost of housing for our citizens in big cities.

So, the truth on trade is the exact opposite of Irwin’s ludicrous construct. Substantially reducing or eliminating our trade deficit would enhance the dollar’s standing by giving the U.S. a more robust, sustainable economy, fewer financial bubbles and probably help motivate politicians to start lowering federal government debt.

Finally, it's fascinating that The Times, so supportive of the radical environmentalist agenda, ignores the reality that by sending industrial production outside the U.S. through free trade, we're offshoring our environmental enforcement to China and other nations which have egregiously lax and routinely evaded emissions laws. 

So, Trump’s trade policies would not only energize our economy but help protect our planet.

It’s disheartening that the vast majority of politicians, journalists and pundits lazily lap up the establishment’s free trade drivel, aiding and abetting the corrosion of America’s middle class and the collapse of African American jobs and incomes. And even worse that so many who know better cynically advance it to achieve their own selfish ends.

The only Americans who’ve benefited from our obtuse trade policies and the outsized financial sector they have fueled are the shareholders and executives of corporations that offshore jobs and import cheap products, the Wall Street players who luxuriate in U.S. trade deficit lucre, and the members of the political class - who are richly rewarded with money and power to preserve the odious economic order Bill and Hillary fostered, the elites fervently favor, and Trump has vowed to overhaul.

If Hillary Clinton is elected President, women will have a very bad #EqualPayDay. Because an intolerable number of men and women are jobless or underemployed due to the Clintons, their elite cronies and countless Republican enablers.

And how can a higher minimum wage possibly increase incomes when all but America’s best educated and most advantageously situated workers are continually undercut by unbridled importing and offshoring?

Trump can defeat “Crooked Hillary” in November – for the very same reason that the elites are relentlessly scheming to stop him. As my friend Newt Gingrich stated well on Fox News Channel, “Donald Trump is the greatest threat to the establishment in my lifetime. If you’re a part of the establishment, he’s a horrifying figure. They’re going, ‘Oh my God, if he won, he’d actually change things!’” 

Not a moment too soon.  

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