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Trump Offers Magic, Not Answers, in Rust Belt

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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Donald Trump traveled to Pennsylvania steel country on Tuesday to make his case against globalism. Hollywood couldn't have provided a better backdrop. And, fittingly, the story he told was pure fantasy.

In an address at the site of a long-closed steel mill in the town of Monessen, the presumptive Republican nominee pledged to withdraw the U.S. from the pending Trans-Pacific Partnership trade deal, renegotiate the North American Free Trade Agreement and label China a currency manipulator. "Trade reform and renegotiation of trade deals is the quickest way to bring jobs back to our country," Trump declared.

If this message raises hopes in Monessen and other hollowed-out U.S. industrial towns, then it's a cruel distraction from the real facts.   

The steel mill, which dated to the 1850s and was last owned by Wheeling-Pittsburgh, shut its doors in 1986. A scrap-metal processor took its place. Over the last 30 years, Monessen has lost half its population and much of its tax base. The local newspaper stopped publishing last year. 

The town's mayor, Louis Mavrakis, a lifelong Democrat, said he invited Trump to speak after attempts to get federal aid for the town went unanswered. Trump "is telling me what I want to hear," he told KDKA, a Pittsburgh TV station. "No one else is saying that," he said. "I have to believe the guy. I'm 78 years old, I've heard this same rhetoric over and over: 'We are going to do this for you.' They get elected and forget about you."

The misery is undeniable, but it was not caused by the trade deals that Trump denounces. The steel mill shut down long before Nafta took effect (in 1994) and before China joined the World Trade Organization (in 2000).  

Even if he could rewrite those agreements to favor U.S. exports and suppress imports (good luck with that), Pennsylvania's industrial economy and its steel-mill jobs aren't coming back. It's cheaper to make commodity steel in Korea, China, Russia -- almost anywhere but the U.S. A global glut of steel-making capacity would make any new American steel plants noncompetitive.

If he made good on his promise on Tuesday to rebuild America's infrastructure only with American-made steel, Trump would violate WTO rules against such protectionism and touch off a retaliatory trade war. He would also violate other rules governing international trade by imposing 45 percent tariffs on Chinese imports.

Let's say he did withdraw the U.S. from the pending Trans-Pacific Partnership. Pennsylvania would be one of the biggest losers. The state exported almost $18 billion in goods and nearly $4 billion in services to six of the treaty's 11 countries in 2014, according to the Business Roundtable. Trade (imports and exports combined) supported more than 20 percent of the jobs in Pennsylvania.

Moreover, channels already exist for the U.S. to press its case against China for unsavory trade practices. The U.S. International Trade Commission, for example, in May allowed an unfair-trading-practices case brought against China by U.S. Steel to proceed to discovery. The company alleges a wide array of practices, including predatory pricing and theft of trade secrets, and could result in the U.S. excluding Chinese steel imports.

In any case, Trump's trade promises can't reverse the quadruple-whammy that hit Monessen. Like most other domestic steel producers, Wheeling-Pittsburgh, the town's largest employer, was squeezed not just by foreign competition but also by outdated technology, unsustainably high labor costs and by environmental rules to clean up the pollution. The company borrowed heavily to modernize, but demand for steel and prices kept falling in the 1970s and 80s, and revenues weren't high enough to pay down the debt, forcing the company into bankruptcy.

Trump can't turn back that clock any more than he can bring back the makers of television sets, toys, furniture, apparel and thousands of other products that have moved offshore (and are now made mostly by robots and other forms of automation).

Most important, Trump neglected to explain that U.S. manufacturing output is higher now than it was in 1970.  The Boston Consulting Group says the U.S. is also the second-most competitive location for manufacturing of the 25 largest manufacturing exporters. That efficiency means the U.S. needs fewer employees, much like the farm sector shed millions of workers a century ago even as it boosted output.

So even if Trump made it easier to attract and keep manufacturers at home, that wouldn't necessarily translate into more jobs. The question is: What will? That's an entirely different challenge, and one for which Trump offers no answers.   

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net