Trump, Hillary and Free Trade

So, besides the nativist, xenophobic, and racist appeals to the darker side of American society, Trump speech was all about trade, and its effects on the working class. That is clearly the strategy for November, and Hillary is, for obvious reasons, weak on that subject. I don't think Trump even thinks Bernie supporters would vote for him, but his appeal to them last night was for them not to vote for Hillary.

Trade matters, even if Trump has no clue why. As, I have explained several times (go here, here or here for the basics of the theory, here  for a brief discussion of the loss of political support for Free Trade Agreements, FTAs) free trade is a bit of a misnomer. Nobody is for purely free trade or complete protectionism. The real discussion is about managed trade, and for what purposes one should manage it. While most economists agree that trade should be managed for phytosanitary rules and defenses purposes, there is unwillingness to accept that the quality of employment and real wages matter too.

Trade matters, because what one country produces matters. Complex products with higher value added are more likely to lead to the incremental innovations that are behind the wealth of nations. Trade agreements that ossify the production structure in sectors with low levels of technological dynamism lead to lower growth, and employment. In the US, certainly, since the entry of China in the WTO there has been a significant collapse of manufacturing jobs (see discussion here), which has not implied lack of technological dynamism per se, but has had a significant impact on the old manufacturing belt, which happens to affect many swing states in this election.

That is why it would be a huge (yuge, really) mistake if Hillary chooses Tim Kaine over Sherrod Brown as a running mate. Both are senators from swing states, but only Brown would be credible as a critic of FTAs. Don't get me wrong. I don't think that if she chooses Sherrod Brown her positions on trade could be trusted blindly (see here, for example; Obama too was critical of FTAs before he was elected). But it would send a signal that the constituency (mostly related to labor) within the party that would want a less pro-business approach to trade would have a voice in the White House (btw, I wouldn't trust Trump's views on trade; given his proposals on taxes, his administration would be the most pro-business since Calvin Coolidge).


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