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2017~ Trade & Jobs: Is Free Trade Hurting the American Economy?

2017-06-09 17:59 [ECONOMY] Source:Netword
Guide:I t is virtually impossible to tune in to political TV or radio without hearing presidential hopeful Donald Trump promise to restore American manufacturing glory by imposing punitive tariffs on imports from China, Mexico, and any other co

It is virtually impossible to tune in to political TV or radio without hearing presidential hopeful Donald Trump promise to restore American manufacturing glory by imposing punitive tariffs on imports from China, Mexico, and any other country that pops into his golden dome. Trump’s shtick, repeated ad nauseam since he first started toying with a presidential run in the 1990s, is replete with errors and myths. But buried therein is an important kernel of truth about America’s labor market and its distressing lack of dynamism — a problem exposed, though certainly not caused, by free trade.

Imports have inarguably affected U.S. manufacturing companies and workers — no serious free-trader argues otherwise. But criticism of trade and its impact on American workers has acquired a sharper edge in the Age of Trump, bolstered in part by a recent study from labor economists David Autor, David Dorn, and Gordon Hanson that found that the recent surge in Chinese imports to the United States has inflicted pronounced harms on the wages and labor-force participation of U.S. workers in local markets (e.g., mill towns) that face direct competition with those imports. Trump fans and longtime trade skeptics on both the left and the right have seized on this study as the final “proof” that free trade — in particular, trade with China — has been a disaster for the United States and its workers, and that a heavy dose of protectionism, through Trump’s tariffs or export subsidies, could produce a manufacturing renaissance in America.

Reality, however, begs to differ.

First, even assuming Autor et al. are entirely correct about the harms of Chinese imports — a conclusion about which George Mason University economist Scott Sumner has raised legitimate questions — there remains no evidence that imports are the primary driver of U.S. manufacturing-job losses, or that the U.S. manufacturing sector is actually in decline. In fact, American manufacturers began slowly and steadily shedding workers as a share of the U.S. work force in the late 1940s and in sheer numerical terms in 1979 — long before the North American Free Trade Agreement existed or Chinese imports were more than a rounding error in U.S. GDP. By contrast, the United States has gained about 54 million jobs since 1980, 30-plus million of which came after the creation of NAFTA and the World Trade Organization in the mid 1990s.

Meanwhile, it is a myth that the United States “doesn’t make anything anymore” or that trade agreements have caused a “giant sucking sound” as investment and jobs go elsewhere. Our manufacturers continue to set production and export records, and the United States is the world’s second-largest manufacturer (17.2 percent of total global output) and third-largest exporter. America also remains the world’s top destination for foreign direct investment ($384 billion in 2015 alone) — more than double second-place Hong Kong and almost triple third-place China. Much of this investment went to U.S. manufacturing assets, as shiny New BMW, Toyota, and other foreign-owned plants across the American South attest.

RELATED: Free Trade Isn’t a Burden, It’s a Blessing and an Opportunity for American Industry

For these and other reasons, it is widely accepted that U.S. manufacturing “decline” has been limited to employment, and that these losses were primarily caused by productivity gains, not trade. Indeed, even the most pessimistic academic studies on imports and manufacturing jobs have found only a limited connection between the two. Autor, Dorn, and Hanson found in 2013, for example, that “import competition explains [only] one-quarter of the contemporaneous aggregate decline in US manufacturing employment” between 1990 and 2007. Other studies have been even more sanguine. For example, a recent Ball State study attributed almost 90 percent of all U.S. manufacturing-job losses since 2000 to productivity gains. “Had we kept 2000-levels of productivity and applied them to 2010-levels of production,” the authors write, “we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.” Thus, it is simply wrong to blame import competition for the disappearance of American manufacturing jobs or the supposed destruction of U.S. industrial capacity.

Second, despite its harms to some manufacturing interests, free trade also has generated broad-based benefits for U.S. consumers, businesses, and workers. In The Payoff to America from Global Integration, economists with the Peterson Institute found that past global-trade liberalization through the WTO and other efforts generated between $2,800 and $5,000 in additional income for the average American and between $7,100 and $12,900 for the average household. The consumer gains from trade disproportionally accrue to America’s poor and middle class. A 2015 study by Pablo Fajgelbaum and Amit Khandelwal finds that these groups, because they concentrate spending in more-traded sectors such as food and clothing, enjoy almost 90 percent of the consumer benefits of trade. These benefits are even more concentrated for Chinese imports, since poor and middle-class American consumers are more likely than their richer counterparts to shop at “big box” stores such as Target and Walmart that carry a lot of made-in-China goods.

More than half of all imports are inputs and capital goods consumed by other American manufacturers to make globally competitive products.


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