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President Donald Trump ran on a campaign promise that he would “put America first” by pulling out of multilateral trade agreements. But for many top industries, outsourcing in the global market is essential for business, not to mention vital to Americans’ standard of living. Is it feasible in the 21st century for America to go it alone? Economics correspondent Paul Solman reports.
It's one of the great economic debates of our era- Should Americans continue to globalize through trade?
President Trump argued the U.S. is prepared to go it alone during his trip to Asia, but is this feasible in the 21st century?
Paul Solman reports for his weekly series, Making Sense.
President Donald Trump:
No longer will we allow other countries to close our factories, steal our jobs and drain our wealth.
(CHEERING AND APPLAUSE)
That was Donald Trump in Arizona in August. And here he was in Vietnam just last week.
We are not going to let the United States be taken advantage of anymore. I am always going to put America first, the same way that I expect all of you in this room to put your countries first.
For President Trump, putting America first means replacing multilateral trade deals, which he thinks are unfair to the U.S., with one-on-one deals.
His evidence that America is getting ripped off by globalization? Our $500 billion annual trade deficit, half-a-trillion more than we buy from abroad than we sell.
With Mexico as an example, we have a trade deficit of $71 billion. That's NAFTA. We have trade deficits with China that are through the roof. They're so big and so bad that it's embarrassing saying what the number is.
Shortly after taking office, the president visited a star American exporter, Boeing, to hype its hot new product, the 787 Dreamliner.
That is one beautiful airplane.
Congratulations to the men and women here who have built it. What an amazing piece of art. What an amazing piece of work.
So, what is this meant to illustrate?
This is the supply chain. This is where Boeing gets its major pieces for the 787.
That's former IMF chief economist Simon Johnson and the pre-assembled pieces of the Dreamliner.
So, this is Japan, and we have got a big piece of the fuselage coming in from Japan, and from Italy, we have a slightly smaller, but still important piece of fuselage. You're going to take the cockpit made in Kansas.
And so that goes up here.
And you're going to add the tail piece, which is coming out of South Carolina.
Now, hold on a minute. From China — this is very important — you still need the rudder.
Putting the plane together is a fantastic feat of American know-how, says Johnson. But the product itself is a thoroughly global division of labor, in which firms around the world specialize and become, well, world-class at what they make and send our way.
But we're not done. You're still missing a few pieces.
Wings flown in from Japan. Horizontal stabilizers from Italy. Landing gear from Simon Johnson's country of origin, Great Britain.
You're proud of these, are you?
Some of the best wheels that Britain has ever produced, absolutely.
And we can offer you, as an option available on the final model, this fine Rolls-Royce engine, although, of course, you have your choice of GE engines, should you so choose.
Moreover, says Johnson-
By having all these suppliers around the world, you're also persuading them and their governments and their airlines to buy your plane.
So, we have got the Chinese buying the plane, we have got the Koreans buying the plane. We have the Indians buying the plane. They make a part of the floor actually of the 787. And we have got the Japanese buying a lot of these planes. This is creating the global market. This is what's making it possible actually to develop and have a 787.
For obvious reasons, airlines in countries with 787 parts suppliers are Boeing's biggest and most reliable 787 customers.
Japan's purchase of 787s means close to $20 billion of revenue for Boeing all by itself.
So, part of Boeing's strategy is to get all these other players, countries, into the game by locating production in those countries.
It's absolutely about getting them into the game. Beyond that, it's about the size of the global market. How many of these planes can you sell and to whom?
But the argument is that, as we outsource to all these companies and countries, we are, and are we not, losing American jobs?
There are absolutely some good jobs developing in this supply chain, but there's a lot of good jobs staying in America, they're staying in Kansas, they're staying in South Carolina, they're staying in Seattle.
And, in fact, the existence of those jobs is made possible by the global market that Boeing creates through this network of suppliers. So, supply side and the demand side are intertwined in this industry.
Let me be very specific. Right now, there's an argument about whether or not we should stay in NAFTA. And it looks like we're going to leave the North American Free Trade Agreement.
What have you got there?
And here comes Aeromexico.
Well, they are part of this conversation. They sell to Boeing and they buy planes from Boeing. Certainly, tearing up NAFTA would be — make a lot of this kind of relationship difficult.
I told you from the first day we will renegotiate NAFTA or we will terminate NAFTA.
President Trump has been loud and clear, so, too, his top trade adviser, economist Peter Navarro.
You have got GM and Ford over the last few years taking billions of dollars to invest in new assembly plants in Mexico, rather than in Michigan. Why did they go to Mexico? Because of aspects of the unfair trade deal of NAFTA.
Is there any advantage at all to any of these trade deals?
Consumers are considered winners, but I would argue that they're much bigger losers when it comes to jobs and paychecks and tax base than they are getting a few cents off at the Wal-Mart buying cheap made-in-China.
But, so far, the other countries in those multilateral agreements don't seem interested in one-on-one deals. Increasingly, America first looks like America alone.
So, I asked economist and historian Adam Tooze- Could the United States go it alone economically?
Well, it's a hypothetical question, but, if any economy could, it's probably the United States, because it's so large, it has so much internal climatic diversity, it has natural resources, the science base, the productive capacity.
So we can make anything, we can grow anything?
Yes, absolutely. And you have the capacity to innovate things that we don't know of yet that might serve as substitutes for things we have decided no longer to import from abroad.
So, then, why not go it alone?
Well, there are huge costs to exiting an efficient division of labor with the world economy.
Conservative economist Peter Morici is even more blunt.
We'd all be very irritable by 10-00 on Monday morning. Where would we get our coffee? We grow a little bit of it in Hawaii, but, largely, we are dependent on imports, and can't grow it here.
But coffee? I mean, how big a deal is coffee?
There are a lot of things that are not that big a deal, but Americans are accustomed to them. What I'm trying to say is, is that we'd have a much lower standard of living if we wholly went it alone. There wouldn't be the incentive to be competitive. There wouldn't be the incentive to innovate.
So, on many fronts, America would be simply backward.
Consider the old Soviet Union, says Morici, satirized in this 1980s Wendy's commercial
Is next, evening wear.
Having a choice is better than none.
Is next, swimwear.
It's a classic example of what happens when you try to limit trade with the outside and do it all yourself. It's one of the reasons that the standard of living, even today in Russia, is so low.
Once you fall behind, it's very difficult to catch up again. It's free trade that gives us the modern consumer economy.
The Trump trade doctrine is this. America will trade with any country, so long as that deal meets these three criterion. You increase GDP growth rate. You decrease the trade deficit. And you strengthen the manufacturing base.
Finally, we put the question to Simon Johnson.
What about the argument that, if there's any country on Earth that can go it alone economically, it would be the United States of America?
We have the largest single economy, but we're only 330 million people. This is a world of seven billion. If you want to make something really big, really innovative, like the 787, you need the entire global market. You need access to all seven billion people.
For the PBS NewsHour, this is economics correspondent Paul Solman, reporting this time from pretty much everywhere.
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Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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