USA Today ran a piece today discussing trade policy in the context of lost manufacturing jobs in Ohio. It treats the loss of these jobs as a mystery, with some experts saying that trade played a role and others denying it. More importantly, the piece never discusses the high dollar, which is the most important reason that the United States has lost jobs through trade. The fact that the United States lost manufacturing jobs to trade is not really in dispute. The country has a trade deficit of more than $700 billion or approximately 5 percent of GDP. This deficit is largely due to imports of manufactured goods. If the deficit were just 1 percent of GDP, as it was in the mid-nineties, and we produced goods domestically that we are currently importing, it would increase manufacturing output and employment by close to 40 percent. This is accounting, it is not really a disputable point, and USA Today badly misled its readers by implying that it is. The other huge flaw in this article is the failure to mention the value of the dollar. The dollar rose by close to 30 percent against the currencies of our trading partners in the late nineties. This was the main cause of the explosion in our trade deficit. If the dollar rises by 30 percent it has approximately the same impact on trade as imposing a 30 percent tariff on all goods exported from the United States and providing a 30 percent subsidy for all goods imported from the country. It is virtually inconceivable that the United States will be able to reduce its trade deficit to a sustainable level unless the dollar falls considerably further against the currencies of our trading partners. It would have been especially appropriate to include a discussion of the dollar in this article, since the high dollar was deliberate policy of the Clinton administration after Robert Rubin became treasury secretary. Since Senator Clinton has quite explicitly identified herself with her husband's economic policies, presumably she also supports a high dollar policy.
--Dean Baker
