Trump Supporters Are Not the Losers from Globalization

A common narrative we hear from the news media this election cycle is that Donald Trump has become popular by tapping into anti-trade sentiment among blue collar workers “on the losing side of trade globalization.”  The basic premises of this narrative are that (1) trade has harmed a large segment of the U.S. population and (2) those people are voting for Trump.  But neither one of those premises is true.

The narrative has been fueled by a paper released earlier this year by economist David Autor, David Dorn, and Gordon Hanson titled “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.”  The paper has gotten a lot of attention from people on all sides of the trade policy debate.

The key finding of the paper is best summarized by this sentence from the abstract: “At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.”  The idea is that trade with China has been so disruptive that many people who lost their jobs due to increased imports from China have not been able to find new work. 

Last week, the Wall Street Journal posted a long article tying the picture painted by the Autor, et al. paper to “disillusionment with globalization” and ultimately support for Donald Trump. 

What happened with Chinese imports is an example of how much of the conventional wisdom about economics that held sway in the late 1990s, including the role of trade, technology and central banking, has since slowly unraveled.

The aftershocks are sowing deep-seated political discontent this election year. Disillusionment with globalization has fed one of the most unconventional political seasons in modern history, with Bernie Sanders and especially Donald Trump tapping into potent anti-free-trade sentiment.

It’s understandable that journalists would be attracted to the idea that Trump’s rise fits into broader storylines about economic change and inequality.  But there are a number of reasons why the narrative just doesn’t make sense. 

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The Economics of Trade: Wilbur Ross Is Mistaken

Billionaire investor Wilbur Ross, a supporter of Donald Trump, made the following comment in a letter to the Wall Street Journal (Aug 15): “It’s Econ 101 that GDP equals the sum of domestic economic activity plus “net exports,” i.e., exports minus imports.  Therefore, when we run massive and chronic trade deficits, it weakens our economy.”

In reality, the last sentence –beginning with “Therefore”– does not follow from the first.

Mr. Ross is alluding to the demand side of National Income Accounts, wherein Y=C+I+G+ (N-X). That is, National Income (Y) equals spending on Consumption (C) plus Investment (I) plus Government (G) plus Net Exports (Imports N minus Exports X).  

Taking such accounting too literally, a reduction in imports may appear to be mathematically equal to an increase in overall real GDP.  But that is dangerously incorrect, as the 1930s should have taught us.

The accounting is true by definition (a tautology). But economics is about behavior, not accounting identities.

If trade deficits “weaken our economy,” as Mr. Ross asserts, then we should expect to see real GDP slow down when trade deficits get larger and see real GDP speed up when trade deficits get smaller or become surpluses.  What the data show is much different – the exact opposite in fact.  

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The Surge in Naturalizations Is Exaggerated

Writers across the political spectrum claim that immigrants are naturalizing at a higher rate to vote against Donald Trump in the 2016 presidential election.  No doubt some lawful permanent residents (LPR) are naturalizing in order to vote against Trump, who has made his anti-immigration position a major component of his campaign, but the annualized number of petitions filed in the first two quarters of FY 2016 don’t show a big increase over 2015 (Figure 1).

Figure 1

Naturalization Petitions Filed Annually

 

Source:  DHS & USCIS.

The Migration Policy Institute notes that the number of FY2016 naturalization petitions filed through March is up 21 percent over the same time in FY2015.  If that holds until the end of the year, then there will be about 164,000 additional naturalizations compared to 2015.  The annual standard deviation for naturalization petitions filed from 2008-2015 was about 121,000. So, although FY2016 petitions are likely to exceed those of FY2015 by more than a standard deviation, it pales in comparison to increases in previous years.    

A better measurement is the annual number of petitions filed as a percent of all eligible LPRs. Department of Homeland Security reports provided most of the numbers while I had to make some estimates for the years 2014-2016 based on trends. According to this rough measurement, the annualized number of FY2016 petitions is only slightly above those of 2015 and below that of 2012 (Figure 2).

Figure 2

Naturalization Petitions Filed as a Percent of All Eligible LPRs

 

Sources: DHS & Author’s Estimates for 2014-2016.

The 2007 spike was caused by people filing their petitions before an 80 percent increase in naturalization fees went into effect. 

Surges in naturalization petitions have occurred in the past, particularly as a result of the enforcement propositions in California in the mid-1990s and after the Reagan amnesty. Although 2016 naturalization petitions are up, reports of a massive surge are exaggerated.         

Missile Accident Reminds U.S. of Dangers of Taiwan Commitment

Taiwan long has been one of the globe’s most dangerous tripwires. Other than a brief period after World War II, the island has not been ruled by the mainland for more than a century. The 23 million people living on what was once called Formosa have made a nation.

However, the People’s Republic of China views Taiwan–also known as the Republic of China (ROC)–as part of the PRC. As China has grown wealthier, it has created a military increasingly capable of defeating Taiwan.

At the same time, economic ties between the two nations have grown, yet the Taiwanese population has steadily identified more with Taiwan than the PRC. The election of Tsai Ing-wen of the traditional pro-independence Democratic Progress Party as president in January greatly discomfited Beijing.

School Choice Lawsuits Update: Summer 2016 Edition

As school choice wins in the court of public opinion, opponents have resorted to fighting it in the courts of law. Here are a few brief updates regarding pending lawsuits against school choice programs around the country.

Colorado: Douglas County’s School Choice Grant Program

Last summer, the Colorado Supreme Court struck down Douglas County’s school voucher program with a plurality ruling that the law violates the state’s historically anti-Catholic Blaine Amendment, which forbids public money from being used at religious schools. District officials responded to the ruling by creating a new voucher program that excludes religious schools, which drew lawsuits from both opponents and supporters of school choice.

The Institute for Justice, which had previously defended the school voucher program, sued the county for unconstitutionally discriminating against religious groups. According to IJ, the “exclusion of religious options from the program violates the Free Exercise, Establishment, Equal Protection, and Free Speech Clauses of the United States Constitution, as well as the Due Process Clause, which guarantees the fundamental right of parents to control and direct the education and upbringing of their children.” IJ contends–correctly, in my view–that the First Amendment requires the government to be neutral both among religions and between religion and non-religion, but it may not actively favor nor discriminate against either religious or non-religious groups or institutions. This case is still pending.

In a separate lawsuit, opponents of school choice contended that the new voucher program was not materially different than the old one. Earlier this month, a district court agreed, striking down the program yet again. Although by excluding religious schools, the new program appears to be in compliance with the Colorado Supreme Court’s ruling, the district court explained that the state supreme court did not rule on the merits of several other alleged violations of state constitutional provisions under which the district court had previously invalidated the program. This case is likely going to return to the state supreme court for resolution.

Florida: Tax-Credit Scholarships

There are currently two lawsuits pending against Florida’s tax-credit scholarship program. As RedefinED reports, a judge recently denied an attempt to fast-track one of the two suits, which primarily concerns the adequacy of the state’s funding of district schools. A judge dismissed the portion of the suit related to the tax-credit program but plaintiffs filed an appeal and asked for the case to skip the appellate court and go straight to the state supreme court. That request has been denied, so the case will go before the appellate court first. That means the program is likely to serve more than 100,000 students by the time it comes before the state supreme court.

Don’t Jail People for Not Paying Traffic Tickets Before You Even Convict Them

The City of Calhoun, Georgia, adopted a scheme by which bail was set to a pre-determined amount, resulting in Maurice Walker being held in jail for nearly 2 weeks on misdemeanor public drunkenness charges. Walker challenged detention on behalf of himself and those similarly situated, including person held on traffic offenses.

The federal district court got it right and enjoined the city from enforcing its scheme: when setting bail for criminal defendants, basic due-process principles require a judge to take into account the defendant’s income and set an individually payable amount. That rule exists to ensure against a manifest injustice, converting pre-trial liberty from a right into a privilege of the wealthy. But Calhoun is pursuing an appeal. As Cato points out in ouramicus brief supporting Walker, the due-process rule that the city violated is quite literally as old as the common law.

Not My Commander in Chief

Hillary Clinton declares on the campaign trail, “Donald Trump simply doesn’t have the temperament to be president and commander in chief of the United States.” Thankfully, he isn’t going to be – not because of his standing in the polls, but because there is no such position as “commander in chief of the United States.”

This is a constitutional republic, and we don’t have a commander in chief. According to Article II of the Constitution, “The President shall be Commander in Chief of the Army and Navy of the United States.”

That’s an important distinction, and it’s disturbing that any candidate for the presidency would miss it. Hillary Clinton may want to be commander in chief of the whole country, of you and me, and to direct us and our economic activities the way the president directs the officers and soldiers of the armed forces. But if so, she needs to propose an amendment to the Constitution – an amendment that would effectively make the rest of the Constitution irrelevant, since it was designed as a Constitution for a limited government of a free people.

Much as they might both wish it, neither Donald Trump nor Hillary Clinton is going to be my commander.