Anatomy of an Editorial

1. Anatomy of an Editorial Jared Bernstein CBPP 9/20/12 bernstein@cbpp.org

2. EPI’s Six Points (new SWA!) • Imports impact on domestic manufacturing jobs • Imbalanced trade • Expinds less labor intensive the imp-competing inds (so even balanced trade would lose manuf jobs) • Exp platforms for intermediate goods hurt production workers • Price-wage channel: real wage decline, even in face of trade-induced lower inflation • Threat effects • Investment flows abroad • Displaced workers in goods flood services • Offshoring

3. Source: State of Working America, 2012

4. Evolution of DC Trade Consensus • Free trade uberalles! • 1980s: trade deficits, wage losses, inequality, pressure on unions, deindustrialization/manuf job declines (but only as share) • NAFTA fight • “Surprising validators” (Sunstein): Samuelson, Krugman (!), Autor et al, R’s and D’s alike (Romney on China) • Consensus is in tatters. I blame “free traders” for taking so long to admit what trade theory has been clear on from the start: benefits AND costs. • And for ignoring that people aren’t only consumers.

5. Anatomy of a WaPo Editorial • “IT’S AN IRON LAW of U.S. politics: You can’t go wrong bashing China. Polls show the public believes that this country is losing jobs due to unfair economic competition from abroad, especially from China. [Um…that’s true.] • And so, every four years, presidential candidates fall all over themselves promising to get tough on imports.” • BUT HOW?

6. Anat…cont. • “The crassness is mitigated only somewhat by the fact that the president was responding to Republican challenger Mitt Romney’s ads promising to do more than Mr. Obama has done to punish China for manipulating the value of its currency on international markets — or “cheating,” as the ads describe it.”

7. Currency Management • Gagnon: “most important development of the past decade in international financial markets”…“gov’ts are distorting capital flows by around $1.5 trillion per year.” • “…millions more Americans and Europeans would be employed if other countries did not manipulate their currencies.” • I don’t know if it’s “cheating” but it’s certainly not “free trade.”

8. Source: Gagnon, Combating Widespread Currency Manipulation, IIE, July 2012

9. Anat…cont. • “To the extent that imports from China — or Mexico, which sells almost three times as much to the United States — reduce the cost of auto manufacturing, and hence the price of cars, they may help create more American jobs than they cost.” • Nope…trade balance with China; Rob Scott’s jobs’ estimates. • “Is the Mr. Obama who charges China with subsidizing its industry the same president who takes credit for bailing out General Motors and Chrysler? “ • That’s a fair point but difference between rescuing industry and subsidizing exports, foreign market share.

10. Source: Scott, The China Toll, EPI, 2012

11. Anat…cont. • “Litigation at the WTO will take months. Would Mr. Romney’s idea, to brand China a currency manipulator, with sanctions to follow, get faster results?” • “The fact is that China has plenty of ways to retaliate when this country protects specific industries; on balance, that retaliation may cost more American jobs. Even if China does not retaliate, the higher production costs and higher consumer prices that trade protection imposes are not evenly distributed. Protectionist measures [my bold] may “save” jobs for higher-paid workers at the expense of those who make less.”

12. What Should We Do? • Currency Bill • Capital controls: tax purchases of dollar asset purchases by manipulators (Gagnon, Hufbauer); no reciprocity, no sale (Gros) • Labeling currency manipulators (Romney) • Piecemeal (Obama admin) • FTAs, TPP?