Does Free Trade Increase Inequality?

 

Several days ago, David Bonior, a former Congressman from Michigan, wrote in the New York Times about “Obama’s Free-Trade Conundrum”. “The President cannot both open markets and close the wage gap.”  There is an “academic consensus that trade flows contribute to between 10 and 40 percent of inequality increases.”  This happens because “there is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers from abroad.”
CaptureBut there is another point of view, provided, for example, by the report “NAFTA at 20: Overview and Trade Effects”, prepared by the Congressional Research Service about a year ago.  “U.S. trade with its NAFTA partners has more than tripled since the agreement took effect (in 1993).  (Canada and Mexico) accounted for 32% of U.S. exports in 2012.  40% of the content of U.S. imports from Mexico and 25% of U.S. exports from Canada are of U.S. origin.  In comparison, U.S. imports from China are said to have only 4% U.S. content.”  In other words, NAFTA at least has been a huge success.
Being able to trade with others is the foundation of private enterprise.  Foreign trade is simply an extension of domestic trade.  To limit trading opportunities with other countries would be a huge barrier to economic growth and therefore to future prosperity as well.
But at the same time we do want a more equal society as well as well as a more prosperous one.  The key to resolving this “conundrum”, as Mr. Bonior puts it, is to address “opportunity inequality” as well as “income inequality.”
It is estimated that each billion dollars in U.S. exports provides employment for about 5000 workers.  Nebraska, for example, exported $12.6 billion worth of goods and services in 2012 which translates into 63,000 jobs.
More jobs and better jobs are what create economic opportunity.  One way to create more jobs and better jobs is to promote foreign trade by removing as many trade barriers as possible.  Hopefully Congress and the President can work together to get this done!

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