Experts skeptical Trump's trade threats would work

WASHINGTON -- Donald Trump has promised to shred America's trade deals and impose fines on imports from Mexico and China. He's gone so far as to swear off Oreos to protest Nabisco's transfer of cookie production from Chicago to Mexico.

By attacking trade agreements, the Republican presidential front-runner is channeling the belief, common among many of this year's angry voters, that foreign competition is robbing American jobs and shrinking wages.

"We're being killed on trade -- absolutely destroyed," Trump said.

His assault on trade deals -- which in some ways echoes arguments of Democratic candidate Bernie Sanders -- seems to be winning politics. But Trump's analysis of how trade hurts American workers is flawed, and as president, he would struggle to deliver on his promises.

The United States does have an unbalanced trade relationship with other nations. Last year, it imported $2.76 trillion in goods and services and exported just $2.22 trillion. That $540 billion gap -- the trade deficit -- was the seventh-biggest on record. Not since 1975 has the United States run a trade surplus.

A trade deficit slows economic growth and can cost jobs. Last year, the U.S. trade gap shrank growth by 0.6 percentage point to a modest 2.4 percent.

Trump, author of the 1987 bestseller "The Art of the Deal," argues American negotiators are snookered by smarter deal-makers in China, Mexico and Japan who manage to penetrate the U.S. market without granting equal access to their own. He and his team, which he has said would include corporate takeover artist Carl Icahn, easily could do better, he said.

Many economists call Trump's arguments off-base. Trade deals usually have little overall effect on jobs, partly because the American economy already is open to foreign competition.

Bigger forces such as wage gaps between the United States and developing countries and automation that lets companies replace workers play a much larger role in job losses.

"We're running large trade deficits, and those do cost us jobs," said C. Fred Bergsten, director emeritus of the Peterson Institute for International Economics. "Almost none of that can be traced to trade agreements, bad, good or otherwise. Trade agreements always have a small net effect on jobs."

Also on Trump's list of those responsible for America's trade problems are businesses that move operations abroad to capitalize on cheaper labor. Trump said he would tax auto imports from Mexico to stop U.S. automakers from moving production there.

Levying those tariffs probably would require congressional approval. It would violate commitments made with the North American Free Trade Agreement, and the tariffs would trigger retaliation from Mexico.

Trump says he could exit the agreement, provided he gave Mexico and Canada six months' notice. Leaving NAFTA would cause chaos for businesses that have arranged their operations around its rules.

Trump has threatened to hit Chinese imports with a 45 percent tariff. But in Thursday's Republican debate, he suggested that the tax might be negotiable.

"The 45 percent is a threat if they don't behave, if they don't follow the rules and regulations so that we can have it equal on both sides, we will tax you," he said on stage.

If Trump replaced the low tariffs provided by NAFTA and World Trade Organization rules with punitive tariffs on Mexican and Chinese goods, he probably would ignite a trade war that would raise prices for Americans and cause diplomatic havoc. Economists recall that the 1930 Smoot-Hawley legislation, which raised tariffs on imports, inflamed trade tensions and worsened the Great Depression.

Many analysts say Trump's approach to China is misguided, too.

He has charged Beijing with undervaluing China's currency, the yuan, to give its companies a price advantage in foreign markets.

The charge is obsolete. The yuan probably was undervalued three years ago, but it's climbed since then.

Now, economists say, the yuan actually has gone too high, partly because it's linked to a rising U.S. dollar. Left alone now, China's currency probably would plummet. So Beijing is buying yuan to prop it up.

"Does that sound like a country trying to undervalue their currency?" says Seattle trade lawyer Bill Perry.

Whatever the merits of Trump's arguments on trade, they have found an audience. More than half of Democratic and Republicans voters in last week's Michigan primary (won by Trump and Sanders) told pollsters they felt trade kills jobs.

Most economists generally promote the benefits of open trade. When foreigners can offer their goods and services, American consumers enjoy more items at better prices, and the competition makes U.S. companies more efficient.

Economists acknowledge that trade creates losers, too. But many who lose jobs can find work in other industries or move where companies are hiring.

A January report on the impact of Chinese imports, from David Autor of the Massachusetts Institute of Technology, Gordon Hanson of the University of California, San Diego, and David Dorn of the University of Zurich, casts some doubt on conventional assumptions. It found that pay remains low and unemployment high for at least a decade in communities where businesses are most exposed to Chinese competition. Workers there bounce among jobs and suffer a drop in lifetime pay.

Rather than pick fights with trading partners, as Trump would, analysts favor retraining workers who lose jobs to foreign competition or giving them financial assistance to move where companies are hiring.

"The politicians have just not done a good enough job in creating the support to help workers make the transition," says Joshua Meltzer, a senior fellow at Brookings Institution.

The political system's lethargy gave Trump an opportunity.

"Why is Trump winning?" Perry asks. "He's energized a part of the lower middle class. The political system has taken them for granted. They feel threatened. And when they feel threatened, they look for a savior."