Look at the data: Trump’s trade agenda would increase middle class income
On February 27, President Trump announced the “lynchpin” of his Strategic National Manufacturing Initiative which he designed in order to bring trade toward balance during his second term by bringing back U.S. manufacturing. The speech was largely been ignored by the media with the exception of The Conservative Treehouse. We have a different take from theirs because we focus upon the effect that his policy would have upon middle class income.
There are two key components to the initiative:
1. Tariffs on Currency Manipulating Countries.
Many countries in Asia and Europe manipulate exchange rates so that they can sell to the United States without buying as much from the United States. Under Trump’s plan, they will face rising tariffs, and those tariffs will go up the more they manipulate their exchange rates. Trump said:
We will phase in a system of universal, baseline tariffs on most foreign products. On top of this, higher tariffs will increase incrementally depending on how much individual foreign countries devalue their currency. They devalue their currency to take advantage of the United States, and they subsidize their industries, or otherwise engage in trade cheating and abuse. And they do it now like never before, and we had it largely stopped and it was going to be stopped completely within less than a year.
The money from these tariffs will be used to give tax cuts to the American people and to build up American manufacturing. Trump said:
As tariffs on foreign producers go up, taxes on American producers will go down and go down very substantially. And that means a lot of jobs coming in.
Not only will this system end our gaping trade deficits—and they are massive right now—and bring back millions of American jobs—it will also bring trillions and trillions of dollars pouring into the U.S. Treasury from foreign countries and allow us to invest that money in American workers, American families, and American communities.
In his speech, Trump correctly pointed out that the Biden administration has produced the highest U.S. trade deficits ever, reaching $948.1 billion. Among other problems, Biden failed to respond effectively when China violated commitments to substantially increase imports from the U.S. The U.S. trade deficit has climbed rapidly during the two years of that Biden has been president as shown in the graph below:
2. Eliminating China’s “Most Favored Nation” Status
President Clinton’s parting gift to his successors was to give China permanent “Most Favored Nation” status in its trade with the United States. The Senate approved that status on Sept. 19, 2000. The immediate result was the exploding trade deficit that President George W. Bush (Bush II in the graph above) failed to counter. President Trump now plans to withdraw China’s most favored nation status, and go further:
We will revoke China’s Most Favored Nation trade status, and adopt a 4-year plan to phase out all Chinese imports of essential goods—everything from electronics to steel to pharmaceuticals. This will include strong protections to ensure China cannot circumvent restrictions by passing goods through conduit countries—countries that don’t make a product, but all of a sudden they’re making a lot of the product, it comes right through China, right out of China, and right into our country.
We will also adopt new rules to stop U.S. companies from pouring investments into China, and to stop China from buying up America, allowing all of those investments that clearly serve American interests. We’re not going to allow bad things to happen to our country anymore. And we will eliminate federal contracts for any company that outsources to China.
In short, he said, “My agenda will tax CHINA to build up AMERICA.”
Trump’s Plan would Increase Middle Class Incomes
As a result of the “free trade” policies followed by Presidents Clinton, Bush II, and Obama, U.S. manufacturing employment shrank from 17.2 million workers in December 2000 to 12.4 million in December 2016 according to the Bureau of Labor Statistics. Trump had increased the number of manufacturing jobs to 12.8 million by February 2020, just before the COVID lockdowns began.
According to “free trade” theory, when jobs are lost producing goods that compete with imports, even better jobs are gained producing exports. But that theory assumes that trade is balanced. When other countries are manipulating their exchange rates to keep trade unbalanced, the jobs that compete with imports are simply lost, and some of the jobs producing exports are lost as well.
The effect of the loss of good paying manufacturing jobs has been disastrous for the U.S. middle class. After losing good-paying jobs in manufacturing, workers often had to take lower wage jobs in the service sector. The best measure of middle class income is the real median household income reported each September for the previous year by the Census Bureau. That’s the income, after adjusting for inflation, of the middle household – in other words, half of U.S. households have higher incomes and half lower.
The real median income in 2021 dollars barely rose under Presidents Bush II and Obama. Then it fell in 2021 under Biden. We have estimated that it fell another 1.5% in 2022 (based upon the fact that wage rates rose by less than 5% while inflation rose by 6.5%). Only under Trump was there a sizable increase in middle class income, as shown in the graph.
President Trump was probably correct when he concluded that, after his plan is implemented, “We will quickly become a manufacturing powerhouse like the world has never seen before.” The result of bringing trade towards balance would be another substantial rise in middle class income similar to the rise that occurred during Trump’s first term.
The Richmans co-authored the 2014 book Balanced Trade published by Lexington Books, and the 2008 book Trading Away Our Future published by Ideal Taxes Association.
Images: Howard Richman and Jesse Richman.