The globalization that Trump decries for having “ripped off” Americans, in fact, produced remarkable benefits. It lifted 1.5 billion people in the developing world out of crushing poverty, according to the International Monetary Fund. In the United States, it produced millions of well-paying jobs, made available a wider array of goods and long kept a lid on inflation.
The nation grew wealthier: The economy more than doubled in size since the North American Free Trade Agreement, which joined the U.S., Canada and Mexico in a trading zone, took effect in 1994.
“I’m old enough to remember when fruit was seasonal,” said economist Michael Strain, of the American Enterprise Institute. “I’m not eager to go back to that world.”
But there were real problems, too. Workers in basic manufacturing, those with the fewest skills and least education, were hurt. Labor unions blamed trade deals like NAFTA for encouraging corporations to move their factories abroad to take advantage of laborers who earned perhaps one-tenth of American wages.
The problem grew more acute after China’s 2001 entry into the World Trade Organization. By 2011, competition from Chinese imports had put 2.4 million Americans out of work, according to research by economists David Autor, David Dorn and Gordon Hanson, who dubbed the phenomenon the “China shock.”
The nation as a whole prospered, and most Americans were better off, thanks to globalization. But the gains from trade were spread across the country while the lost jobs and shuttered factories were concentrated in specific communities, economists said.
Three-quarters of Americans benefited from trade with China, according to a 2018 study by four economists led by Zhi Wang, of George Mason University. But for workers without a college degree, the China shock meant declines in their inflation-adjusted wages each year for almost a decade.
Compounding the pain was Washington’s failure to do much about it. Politicians beginning with President Bill Clinton had promised government assistance for such dislocated workers, warning that without it, political support for trade liberalization would evaporate.
But the principal program for retraining workers hurt by trade deals, called Trade Adjustment Assistance, was chronically underfunded.
The number of manufacturing jobs had been sliding since 1979 in all advanced economies, not just the United States. But in the first few years after China joined the WTO, the drop accelerated. Between 2000 and 2003, about 3 million factory jobs vanished, more than had been lost in the final two decades of the 20th century.
Automation, not trade, was responsible for most of the job losses, economists said. But trade agreements were a political choice, making their effect more visible than companies’ decisions to replace workers with machines and providing a focus for public ire.
And those choices appeared to benefit some Americans at the expense of others. From 1999 to 2015, median household income in the United States flatlined while after-tax corporate profits, aided by low-wage foreign labor, roughly tripled.
The global trading regime that U.S. leaders had created under the auspices of the World Trade Organization ultimately failed to cope with the rise of a mammoth economy like China that did not adhere to the traditional free market playbook. The traditional approach of cumbersome global trade talks involving more than 100 countries fell out of favor.
By 2008, anti-trade sentiment was significant enough that both Hillary Clinton and Barack Obama criticized NAFTA in the Democratic presidential primaries. The global financial crisis later that year only aggravated the suffering of many who had been hit by the China shock.
When Trump ran for president in 2016, anti-trade sentiment — along with attacks on immigrants — were his chief cudgels. The former real estate developer and reality-television star had long held protectionist views. He boasted of graduating from the University of Pennsylvania’s Wharton School of Finance, whose founder, the 19th-century industrialist Joseph Wharton, scorned free trade as a “fungus” and advocated that the nation be “self sufficient.” In the 1980s, the future president inveighed against Japan’s mercantilist trade practices, foreshadowing his later complaints about China.
The irony now is that the landscape has changed. The China shock ended more than a decade ago. Trade as a share of the global economy has stagnated since the 2008 financial crisis. Amid all Trump’s attacks on trade “cheating” by foreign nations, public opinion has warmed to global commerce: In a recent Gallup poll, 81% of those surveyed called trade an opportunity, not a threat.
The president says the nation will be better off making more of what it needs rather than buying it from others, even if costs go up. Greater domestic manufacturing will promote healthier communities and a stronger national defense, he said. Americans can no longer be the global economy’s consumers of last resort, absorbing the excess production of other nations.
Administration officials say that some manufacturing, especially in the auto industry, can return quickly. U.S. auto plants are operating at 68% capacity, down from 88% as recently as 2015, according to the Federal Reserve.
But Trump’s hopes of repatriating all of the manufacturing capacity that moved offshore during globalization’s heyday will almost certainly be disappointed, economists said. The average car, for example, contains about 30,000 parts with roughly half coming from abroad. Activating the domestic suppliers capable of producing those may take years and cost billions of dollars.
Confusion over the president’s intentions could also freeze corporate decision-makers, leaving them unsure where to invest in new production. The administration has given mixed signals about whether the tariffs will be used as leverage to reduce foreign trade barriers or be a lasting feature of a restructured economy.
“Nobody knows what the permanent tariff is going to be. You can’t plan. You can’t bet on that,” said Christopher Meissner, a professor of economics at the University of California at Davis. “You just can’t count on anything here. There’s no certitude.”
Trump’s sky-high tariffs could also result in a trading system organized along regional lines, according to Craig Allen, senior counselor at the Cohen Group. Asian suppliers in countries like Vietnam and Cambodia must battle tariffs near 50%. But Latin American nations including Brazil, Argentina, Costa Rica and Guatemala all were assigned the new minimum U.S. tariff of 10%.
“We’re moving toward more regional trade and moving away from globalization,” Allen said. “The efficiency losses are going to be high. But greater regional integration is not a bad thing at all.”
For now, Trump’s revolution in international economics is limited to the trade in physical goods. While cross-border product flows face new headwinds from his historic tariffs, trade in services such as portfolio management, travel and tourism, and digital entertainment shows no signs of slowing, according to Richard Baldwin, professor of international economics at IMD Business School in Lausanne, Switzerland.
The diplomatic costs of Trump’s abrupt economic reordering, however, are already apparent. Canadian Prime Minister Mark Carney this week pronounced an epitaph for American economic leadership and said Canada would look elsewhere for commercial partners. Likewise, the European Union is negotiating a free trade deal with India. Brazil and China are deepening their economic ties, using the Chinese yuan.
“The turn toward unilateralism by the Trump administration does not suddenly make everyone else a protectionist. It only leads them to want to protect themselves from the United States. Whatever international economic order emerges from the current chaos, the role of the United States in it will be fundamentally transformed,” said Jeffry Frieden, a political science professor at Columbia University and author of “Global Capitalism.”
Trump’s team recognizes the significance of what they have done, and they are untroubled by the criticism. Briefing reporters as the president prepared to announce the sea change in U.S. policy, one senior White House official said: “Today, we’re in one era, and tomorrow we will be in a different era.”