Table of Contents

Summary

All U.S. administrations aim to conceive foreign policies that protect and enhance Americans’ safety, prosperity, and way of life. However, views now diverge considerably within and across political party lines about whether the U.S. role abroad is adequately advancing the economic well-being of the middle class at home. Today, even as the U.S. economy is growing and unemployment rates are falling, many households still struggle to sustain a middle-class standard of living. Meanwhile, America’s top earners accrue an increasing share of the nation’s income and wealth, and China and other economic competitors overseas reap increasing benefits from a global economy that U.S. security and leadership help underwrite.

Policymakers need to explore ways to make U.S. foreign policy work better for America’s middle class, even if their economic fortunes depend largely on domestic factors and policies. However, before policymakers propose big foreign policy changes, they should first test their assumptions about who the middle class is, what economic problems they face, and how different aspects of U.S. foreign policy can cause or solve them. They need to examine how much issues like trade matter to these households’ economic fortunes relative to other foreign and domestic policies. They should acknowledge the trade-offs arising from policy changes that benefit some communities at the expense of others. And they should reach beyond the foreign policy establishment to hear from those in the nation’s heartland who have critical perspectives to offer, especially state and local officials, economic developers, small business owners, local labor representatives, community leaders, and working families.

Policymakers need to explore ways to make U.S. foreign policy work better for America’s middle class, even if their economic fortunes depend largely on domestic factors and policies.

With these objectives in mind, the Carnegie Endowment for International Peace launched a series of state-level case studies to determine whether significant changes to U.S. foreign policy are needed to better advance the economic well-being of America’s middle class. Ohio was chosen for the inaugural study because of its economic and political diversity and its well-known status as a bellwether state. Carnegie partnered with researchers at OSU to conduct the study and convened a bipartisan task force comprised of former senior policymakers to provide strategic guidance and shape the findings. Interviews were conducted in Cleveland, Columbus, Coshocton, Dayton, Lima, and Marion to solicit views in diverse conditions across the state.

What We Heard and Learned

U.S. national security and foreign policy professionals in Washington, DC, and worldwide strive to sustain U.S. global leadership. Their international economic, trade, commercial, defense, aid, and other foreign policies aim to promote macroeconomic growth and stability and to deliver maximum aggregate benefits for the nation. But many people at the state and local levels are unclear on what all this activity actually entails or how it helps their communities prosper. They worry that policymakers prioritize the concerns of special interests with privileged access and influence. And they mostly depend on big businesses and industry associations to assess the economic implications of U.S. foreign policy—which becomes problematic when the interests of the state’s key industries are at odds with each other or their own workers. Trade-offs assumed to exist between different U.S. states play out within Ohio itself.

Few interviewees feel well-placed to judge how U.S. foreign policy or global leadership, writ large, could work better for Ohio’s middle class. Most can only comment on what is visible to them: trade, foreign direct investment (FDI), and defense spending. And in each of these areas, policy changes that could benefit some might hurt others, depending on unique local economic conditions.

Many Parts of Ohio Are Thriving, but Others Are Still Struggling
  • The term “Rust Belt” no longer accurately describes Ohio’s economy. The state’s government, private sector, and local communities now partner together to attract investment in a highly diversified, modern, globally connected economy. Ohio still enjoys key strategic advantages—including its geographic location, distribution networks, academic and research institutions, and human talent—that originally attracted manufacturers to the state. The economy is growing, unemployment is falling, and business confidence is high.
  • At the same time, Ohio’s economy and workforce are growing and prospering unevenly. Many of the best-paying middle-class jobs require bachelor’s or advanced degrees, putting them beyond reach of the majority of employees. Manufacturing, which can still provide a decent wage for those without a college degree, accounts for less than 13 percent of the workforce. The most prevalent occupations, such as food preparers and retail salespersons, pay average annual wages below $33,000 per year. Walmart is the top employer in Ohio, as it is in twenty-one other U.S. states. Many smaller cities and towns struggle to reinvent their economic bases following the departure of major employers.
Trade Has Become a Proxy for Debate on Wider Economic Challenges
  • To create more well-paying jobs in Ohio, attract investment, and provide working families with more affordable goods and services, the United States must be trading freely in an open, integrated global economy. That is the opinion expressed by economic developers in all six areas where interviews were conducted. No one is arguing strictly for protectionism or isolationism. But opinions diverge on how best to benefit from trade and globalization, given disparities in how businesses and workers to date have profited and suffered as a result of it.
  • In Columbus, state officials, economic developers, and business owners support strict enforcement of trading rules, including on theft of intellectual property. Yet they caution against trade instability that could undermine efforts to attract investment for both the manufacturing and services sectors. They worry about efforts to help certain struggling industries at the expense of others. And they fear that restrictive immigration policies could make it harder to secure top talent from the global market. Essentially, they pride themselves on being a “global city” and believe this international orientation contributes to making Columbus one of the fastest growing cities in America.
No one is arguing strictly for protectionism or isolationism. But opinions diverge on how best to benefit from trade and globalization, given disparities in how businesses and workers to date have profited and suffered as a result of it.
  • Even in struggling manufacturing towns like Coshocton and Marion, they also express strong support for free trade and accept that technological advances and other market forces will continue to transform employment in their area. However, they insist on “fair trade” and additional measures that would give them “a fighting chance.” For them, this means pushing for higher labor standards within trade agreements with low-wage paying countries; taking a tougher line against countries not playing by the rules; and not allowing externally owned, large companies to abruptly walk away and leave behind decaying buildings and infrastructure. For some, a “fighting chance” also means repairing a de facto social contract that once seemed to exist among government, business, labor, and communities.
  • For constituencies hard-hit by manufacturing job losses, “trade” appears to be a proxy for discussing a broader set of socioeconomic challenges arising from structural changes in the global economy. According to OSU’s research, Ohio suffered an estimated net loss of 750,000 good-paying middle-class manufacturing jobs between 1969 and 2009 due to various factors, including automation and competition with other U.S. states. Foreign trade competition also accounted for a sizable portion, though no more than one-third of the total manufacturing jobs lost during this period. Trade adjustment assistance programs (TAA) failed to adequately offset the pain of the trade-related job losses and were never designed to help workers, businesses, and entire communities facing crises due to other factors. Meanwhile, workers’ collective bargaining power for higher wages and benefits diminished, as union participation dropped precipitously during this time.
Escalating Trade Tensions With China Elicit Mixed Reactions
  • Of the trade-related job losses, import competition from China following its accession to the World Trade Organization (WTO) in 2001 accounted for a far greater share than the North American Free Trade Agreement (NAFTA). Interviewees affected by the “China shock” express sympathy for President Donald Trump’s imposition of tariffs on imported Chinese goods. “At least he’s doing something” is a sentiment expressed by those describing China’s model of state capitalism as incompatible with the international trading system.
  • However, many of the economic developers interviewed fear that a prolonged trade war with China could create considerable uncertainty and unpredictability in the marketplace. They worry this would have a chilling effect on Ohio’s ability to attract investment and maintain a competitive economy. And agricultural exporters, such as in Lima, urged against thinking in zero-sum terms, because China represents an important market for their products.
Ohioans Across the Spectrum Highlight the Importance of FDI
  • While Ohioans appear divided on trade, interviewees in all areas singularly stress how attracting FDI is central to creating more well-paying middle-class jobs in urban and rural counties across the state. All interviewees appear to agree that state government, business, and local communities should work together to attract more FDI, especially in light of the fierce competition they face from other U.S. states and internationally.
  • Once a source of economic anxiety, Japanese investment now accounts for over 70,000 of the approximately 247,000 jobs in Ohio directly supported by FDI (roughly equal to those directly supported by exports). Honda is now the state’s top manufacturing employer. Despite objections to Chinese trading practices, virtually all interviewees said they want more Chinese FDI in Ohio. Many are open to the idea that China could one day become a major provider of FDI, similar to Japan, though they recognize the fundamental differences between these two countries’ relations and alignment of interests with the United States.
Views on Defense Spending Distinguish Between War-Fighting and Job Creation
  • Just as FDI is seen as critical for local economic development in many parts of Ohio, so too is defense spending, notwithstanding interviewees’ ardent opposition to what some portrayed as “unwise, costly, and unfunded wars.”
  • Interviewees across the political spectrum voice strong support for sustaining or increasing defense spending that provides jobs. If the Wright-Patterson Air Force Base—Ohio’s largest single-site employer—were to close, the Dayton area would be devastated. Similarly, if tank production for the U.S. Army were substantially reduced or halted, Lima would suffer greatly. Ohioans also count on the National Guard and Reserves to help cover educational expenses, acquire coveted training, earn a livable wage, receive healthcare, and supplement their retirement savings.

Issues to Consider in Making Foreign Policy Work for the Middle Class

It is too soon to gauge the implications of the renegotiated NAFTA agreement, now called the U.S.-Mexico-Canada Agreement (USMCA). Further, while there will be winners and losers among Ohio’s middle class as a result of tariffs or a “trade war” with China, there is too much uncertainty and insufficient data at this point to declare who they are. In any event, that was not the purpose of this study; however, the quantitative and qualitative data gathered helps to place such debates in a wider context. Five major sets of policy directions and questions emerged that should help inform policymakers’ efforts to make U.S. foreign policy work better for the middle class:

  • Clarify the national economic interests: How should national economic interests (to be advanced through foreign policy) be defined? To what extent are those interests undercut when the benefits from economic growth concentrate more in upper-income brackets and specific geographic locations—and meanwhile, an increasing number of workers and places struggle to sustain a middle-class standard of living?
  • Link trade to a comprehensive national economic strategy: How can we ensure that the trade agenda is developed in tandem with a comprehensive economic strategy to enhance competitiveness and help workers and communities adapt to structural changes in the global economy?
  • Develop a national strategy for FDI: What more must be done at a national level, through public and private efforts, to make the United States even more competitive in the global market to attract and retain FDI while discouraging a “race to the bottom” between U.S. cities and states to win deals?
  • Highlight the economic trade-offs around defense spending: How can the debates on the defense budget more clearly acknowledge the livelihoods of working families and entire communities it sustains, the health of the global economy it promotes, and the resources for pressing domestic investment it depletes and diverts? 
  • Define the U.S. global leadership role and its economic implications: As the need for domestic investments at home increases and the nature of international competition and cooperation evolve, especially with China, what should U.S. global leadership entail, what will it cost, and how will American working families benefit from it economically?

These questions leapt out from the data gathered during this study, especially from the micro-case studies conducted in Columbus, Cleveland, Coshocton, Dayton, Lima, and Marion. The answers, however, are less obvious, as they will require policymakers to contemplate major strategic shifts and to choose among starkly different options (see the report’s concluding chapter). Carnegie task force members intend to elaborate on, and add to, these policy options following additional state-level case studies in 2019 and will offer detailed recommendations in a final report in 2020. Meanwhile, the data and dilemmas highlighted in this inaugural study should provide policymakers with food-for-thought—at a time when U.S. foreign policy has reached a critical inflection point.