Against Brownomics

Posted: Oct 19, 2006 5:40 PM

If only the U.S. economy would have a steep recession. Then, perhaps, Rep. Sherrod Brown's fondest economic dream would come true -- the U.S. trade deficit would decline.

Brown is the Democrat who has a big lead in his race to defeat incumbent Republican Sen. Mike DeWine in that traditional breadbasket of Republicanism, Ohio. Brown hopes to overturn the post-World War II free-trade consensus that has been upheld in both the Clinton and Bush administrations. One of his motives is the high U.S. trade deficit: "Our shortsighted trade policies are producing record deficits, and it is time to change course," he says.

The U.S. trade deficit was running at $69.9 billion in August, a record. This should, generally, be a matter of indifference. It means that our economy is healthy and viewed as an attractive place to invest. A trade deficit and capital-account surplus result from the inflow of foreign capital that enables the U.S. to consume and invest more than it could otherwise. Would Brown prefer the alternative?

When the U.S. was rising to become the world's greatest industrial power in the 19th century, it ran a trade deficit for roughly seven decades. During the Great Depression, we ran a surplus. Obviously, a trade surplus in and of itself isn't necessarily desirable. Japan ran a trade surplus when its economy was growing, and ran a trade surplus when its economy was headed toward a decade-long period of stagnation.

Brown wants to reverse the deficit by tightening trade rules. But this would not work. Trade barriers erected by the U.S. would almost certainly trigger foreign retaliation, while undermining U.S. competitiveness. So exports and imports both would fall, still leaving a deficit. Now, U.S. exports are thriving. They were valued at $122.4 billion in August, another record.

Brown complains that we are exporting jobs. One wonders: What jobs could they be? The unemployment rate is 4.6 percent, close to full employment. Yes, there are call centers for U.S. companies in places like India, but are those jobs so desirable that we need to fight to keep them here? Oddly, Brown supports an amnesty for illegal immigrants, a policy whose supporters often argue that illegal immigrants fill jobs Americans won't do. So the Brown position effectively is that we need to keep low-skill jobs -- so Mexicans can do them.

Brown also argues that free trade depresses U.S. wages. But the much-hyped lag in wage growth probably has more to do with the business cycle. As the job market tightened, inflation-adjusted earnings have risen 2.2 percent from a year earlier. The stagnation in wages has been exaggerated, in any case. When benefits are taken into account, total inflation-adjusted compensation has risen 10 percent since 2000.

Finally, Brown blames the decline in U.S. manufacturing on free trade. This decline, however, represents a long-term trend, comparable to the decline in agricultural employment throughout the 20th century. As long as the economy is vibrant, workers in a sagging sector find employment in another. This is painful for those workers, but a reactionary parochialism shouldn't be permitted to put their interests above those of the economy as a whole, which benefits from free trade.

There are tangible benefits that Brown's opponent, Mike DeWine, notes. In Ohio, 30 percent of the state's agricultural products get exported and a quarter of its manufacturing jobs depend on exports. More broadly, free trade lowers prices for consumers, alleviating the alleged "middle-class squeeze." It increases efficiency through the fires of competition. It's no accident that one of world's most open economies is also one of the fastest-growing.

Unfortunately, Brown represents a trend. As Jonathan Martin, political writer for National Journal's The Hotline points out, many Democratic senatorial candidates share Brown's views on trade, so the traditionally free-trade Senate will soon be more protectionist. That's bad news for the economy, but maybe, just maybe, through dampening America's growth, Democrats will reduce the hated trade deficit.