51: Trade at the White House in Not So Normal Times

Episode Summary

Executive Summary: Jason Furman argues that trade mattered in the Obama years, but mostly as one part of a much larger domestic economic response to the financial crisis. He defends export promotion, a pragmatic view of China, and multilateral trade engagement, while warning that Trump-era trade fights over deficits and tariffs are economically overstated and risk harming consumers, firms, and global supply chains.

Main Topics: Trade’s role in the 2009 crisis response (Priority: 5/5): Furman says the crisis was overwhelmingly domestic, so policy centered on fiscal stimulus, financial rescue, autos, housing, and monetary support; exports were a secondary but meaningful recovery channel. National Export Initiative and export targeting (Priority: 4/5): The Obama administration’s goal to double exports was framed as an organizing principle rather than a centrally planned target, intended to focus agencies on removing barriers and supporting recovery. What Obama and Trump get right and wrong on trade (Priority: 5/5): Furman says Obama also ran on tougher trade rhetoric, but the real response to globalization’s losers was domestic policy, especially the Affordable Care Act, not tariffs. Trade deficits, currency, and China policy (Priority: 5/5): He rejects most bilateral trade-deficit arguments, distinguishes legitimate concerns about China’s past currency manipulation, and says that issue was largely resolved by exchange-rate appreciation. China shock, WTO, and the limits of alarmism (Priority: 4/5): He acknowledges evidence of localized harm from China competition but argues the effect is smaller than overall labor-market churn, partly offset by U.S. export gains, and better handled through WTO integration. Risks of escalating trade conflict (Priority: 4/5): Furman warns that tariffs raise import costs, delay investment, and could push supply chains toward damaging localism; he views the macroeconomic stakes as real but limited relative to the size of the U.S. economy. TPP as strategic trade architecture (Priority: 4/5): He says the Trans-Pacific Partnership was sold mainly for exports and high-standard rules, but it also implicitly aimed to create future constraints on China via labor, environment, SOEs, and transparency rules.

Key Arguments: The 2009 recession response was primarily domestic; trade policy was not the main macro tool. Export growth was a plausible recovery channel because global trade collapsed and foreign demand could help offset weak U.S. consumption and investment. The Recovery Act included domestic content rules, but these were mostly political constraints and not expected to materially boost U.S. economic performance. Doubling exports was a useful but somewhat arbitrary target meant to coordinate government action, not to micro-manage firms. The best response to globalization’s losers is domestic social policy, especially broad health and safety-net expansion, not narrow trade restrictions. Trade deficits are usually driven by domestic saving/investment imbalances, not by trade policy itself. China’s currency manipulation was once real, but exchange-rate appreciation and a much smaller current-account surplus mean that problem has largely receded. The China shock literature shows real localized harm, but it does not overturn the broader case for trade because exports also create jobs and China’s rise was a one-time historical event. The Obama administration’s approach to China favored multilateral pressure, WTO cases, and bargaining over issues that also benefited the U.S. A confrontational, bilateral, deficit-focused China strategy risks more economic harm than the likely gains from addressing trade complaints. The TPP aimed not only to expand trade but also to establish rules on labor, environment, SOEs, and transparency that could later shape China’s behavior. Trade economists must talk about distribution, not just efficiency, but better domestic policy—not trade policy alone—is needed to make trade politically sustainable.

Data Points: National Export Initiative target: Double exports within 5 years - Obama administration goal discussed as an organizing principle for recovery and trade policy Jobs supported by export goal: 2 million jobs - Obama’s announcement framed export growth as job-supporting China current account surplus: Fell from 10% of GDP to 1.4% of GDP - Used to argue China’s currency/manipulation problem was largely solved China currency appreciation: 40% - Evidence that China’s exchange rate had adjusted significantly China imports from the U.S.: Up 886% - Cited to show WTO-era integration increased U.S.-China trade substantially U.S. economy trade share: About 13% - Used to argue trade fights cannot transform the overall U.S. economy by huge amounts All-out trade war effect: Less than 0.1% per year growth impact over a decade - Macro-model estimate cited to show the aggregate damage is meaningful but not catastrophic Trade-affected worker support: ACA viewed as likely more valuable than trade adjustment assistance - Comparative claim about helping workers displaced by trade

Pivotal Quotes: "the far more important response to all of those complaints about globalization was what was done domestically" — Jason Furman: On how Obama-era policy should have addressed trade losers "trade deficits are, first of all, primarily the result of domestic policy" — Jason Furman: On why bilateral deficit-focused trade arguments are misleading "I think our economic relationship with China really can be positive some, first of all" — Jason Furman: On favoring engagement and multilateral management over isolation

Implications: For policymakers, the episode argues for pairing open trade with strong domestic adjustment policy, multilateral China strategy, and restraint about deficit panic. For business, tariffs and uncertainty can raise costs and distort supply chains more than they fix underlying issues.