President-elect Donald Trump rallied angry voters by blaming trade for the loss of high-quality jobs. That was hardly an original observation. In fact, Trump’s predecessor in the White House, Barack Obama, made a similar case back in 2010.
Obama’s pitch was different than Trump’s, focused on fixing shortfalls in the nation’s trading relationships instead of tearing up free-trade deals and starting over. Specifically, Obama called in his 2010 State of the Union speech for doubling exports by the end of 2014. This, he said, would create 2 million jobs, and they’d mostly be good-paying jobs in manufacturing. In other words, it might make America great again.
It didn’t. Trade experts immediately questioned Obama’s plan, noting that such a dramatic change in a short period of time would require disruptive changes in exchange rates between the United States and its trading partners. Punishing US companies for operating overseas, as Obama proposed, would be counterproductive. And Obama’s “Buy America” incentives would invite retaliatory measures by China and others.
The skepticism was justified. By the end of 2014, US exports had risen just 28.2% compared with 2010 levels, according to Census Bureau data. That was far short of Obama’s goal, which was 100% growth. Exports of services—which include tourists traveling to the United States—rose 31.9%. Exports of goods—products manufactured in the United States—were up just 26.6%. And US exports have actually declined since then, with the pace of exports through the first 10 months of 2016 just 8.3% higher than during the same period in 2010.
One thing that frustrated Obama’s goal for exports is a strengthening dollar—something the president can’t really control, and shouldn’t try to. The dollar began to appreciate sharply against many other currencies starting in 2014, as the Federal Reserve began to wind down its aggressive monetary stimulus plans and investors anticipated higher interest rates in the United States. As the dollar strengthens, American exports become more expensive elsewhere, and tend to decline. Imports become cheaper, and tend to go up.
Imports have risen by a smaller portion than exports since 2010, which means the overall trade deficit—$500 billion at the end of 2015—is about the same as it was in 2010. But Donald Trump, the incoming Republican president, hammered away at America’s trade deficit during the campaign, claiming that China and Mexico have been stealing American jobs. His appeal seems to have worked, since voters in Rust Belt states such as Pennsylvania and Ohio who have struggled to hold onto blue-collar jobs helped put Trump over the top.
Obama essentially fingered the same problem as Trump—a shortfall of good blue-collar jobs—several years earlier. Had Obama actually been able to create those two million jobs he promised, it might have dampened Trump’s appeal.
Now, the failure of Obama’s export plan serves as a cautionary tale for Trump. The incoming president says he’ll “get tough” with trade partners like China and Mexico, negotiating new terms that are more favorable to the United States. His overall goal is to create 25 million new jobs within a decade. But there’s no reason to think Trump will be any more successful than Obama at manipulating an immensely complex part of the global economy to America’s advantage. Presidents tend to come into office thinking they can pull the levers of the economy more effectively than their predecessors. They often leave chastened. And Trump has promised a lot more than those who came before him.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.
"...starting in 2014, ... the Federal Reserve began to wind down its aggressive monetary stimulus plans" -- Why this, then? Any special interest group pushing for this from behind?
-- The New Legalist editor
