Can He Do It? Trump’s Ultimate Negotiation Test

Trump: I say trade, you say China! Trade! *China!* Trade! *China*

Maybe this isn’t exactly how the President-elect’s rallies went down but if you watched the debates, you would think this was the standard roll call at each gathering.

So much of the recent elections were spent talking about deals that some may have thought Howie Mandel was due for a cameo. But the type of trade deals that have reshaped our global economy aren’t done using chrome briefcases and former Instagram models. For decades Republicans and Democrats have displayed international trade deals as the manifestation of diplomacy and free-trade. So when President-elect Trump began to chastise trade deals like NAFTA as the reason we are losing manufacturing jobs, the country began to listen.

Realizing that the US has indeed lost 5 million manufacturing jobs since 2000 (NAFTA was enacted in 1994) is vital to understanding why trade deals became such a hot button issue. With so many people displaced from their jobs over the last decades, there was plenty of harbored resentment that came to light during the election season. While justified, this anger blinded many critics from the fact that manufacturing jobs have actually been declining steadily since the 1960’s, long before the enactment of NAFTA.

*Source: US Bureau of Labor Statistics*

While some may still attribute the decline of manufacturing jobs to free-trade deals, the main contributor by a significant margin is improvements in technology. In a Ball State University report, Dr. Michael J Hicks attributed technology and productivity increases as 88 percent of the reason for the losses in manufacturing jobs with trade being responsible for the other 12 percent.  

This data helps illuminate some of the misconceptions on trade deals but still does little to ease the momentum built up against them. Though the numbers aren’t so much disputed, focusing only on them ignores the source of displeasure. While theoretically the consumer benefit, as a result of trade, is always greater than casualties felt as a loss of jobs, the burden of job loss often falls on already hindered communities. To help these groups climb out of this sand pit, the most proven and effective way President-elect Trump could help is through expansion of the existing federal worker retraining programs, not a trade-war with the Chinese. And while it may be tempting to stick it to our neighbors to the East, the fact that they own a significant share of our debt (6.08 percent) means that we should be as amicable as we can tolerate.

Shifting the focus to another inescapable topic, the national debt’s meaning has evaded many even though its presence lingers in almost all political conversations. Thus, for context, the national debt can be imagined as the sum of the loans taken out by the US government plus the money owed to investors, foreign and domestic, who buy its bonds.

President-elect Trump wants to reduce the national debt through refinancing, but unfortunately this isn’t as easy as calling J.G. Wentworth. What this would actually look like would be the US government paying some dollar amount less to investors which includes American citizens, foreign governments and itself than initially agreed in exchange for receiving the money sooner rather than later. Speaking to Albion’s E. Maynard Aris Professor of Economics, Dr. Gregory Saltzman, he deemed it a feasible but unwise possibility.  

“In the short term one might be able to get away with something and pay off the debt at less than 100 cents on the dollar,” said Saltzman. “But for decades afterwards, the US government would have to pay higher interest rates to convince people it’s worth the risk investing in government bonds.”

By not paying the debt owed to investors on bonds, the US would risk international exclusion from the bond market similar to what is currently happening in Argentina. In layman terms, no one would give money to the US government. And this is significant when one realizes that the government is responsible for all public amenities including roads, schools and law enforcement officers.

Noting the President-elect’s thrifty business acumen that he promises to bring to The White House, Saltzman doesn’t expect any negotiations on the debt to not come without dire consequences.

“It would trash the government’s reputation,” said Saltzman. “And it’s something where you can swindle people once and get away with it, but then your reputation is ruined and it haunts you for years after.”


Photo by Kena Betancur

About Jamal Yearwood 17 Articles
Jamal is a Senior from Saginaw, Michigan. A Spanish major with a minor Economics, he has his very own Linkedin.  View Jamal Yearwood's profile

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