My last post discusses the fact that both worldwide, and in the U.S., employment is growing robustly, while productivity is declining. In the U.S., for example, the economy is producing lots of new (low-productivity) service jobs and fewer (high-productivity) manufacturing jobs.
As I have pointed out previously, there is a high degree of correlation between the growth of world trade and the growth of world GDP. Unfortunately, many Americans, especially blue collar workers, blame their own economic stagnation on the competition from foreign trade. This has caused several presidential candidates to declare opposition to the recently negotiated Trans Pacific Trade Pact.
A very informative article by Scott Lincicome in the current issue of the National Review, “The Truth about Trade” points out the fallacy in this way of thinking.
According to Mr. Lincicome:
- The U.S. is the world’s second largest manufacturer (17.2% of global output) and third largest exporter. America remains the world’s top destination for foreign direct investment ($384 billion in 2015). Much of this investment goes to U.S. manufacturing assets.
- The U.S. manufacturing “decline” has been limited to employment losses primarily caused by productivity gains, not trade. Import competition explains only ¼ of the contemporaneous aggregate decline in U.S. manufacturing employment.
- Past global trade liberalization has generated between $2800 and $5000 in additional income for the average American. Almost 90% of these gains accrue to America’s poor and middle class, because of more heavily traded sectors such as food and clothing.
- More than half of all imports are inputs and capital goods consumed by other American manufacturers to make globally competitive products.
- Protective tariffs force American families and businesses to subsidize the small share of U.S. manufacturers and workers who compete directly with the imports at issue.
- We do not have a good set of policies for helping workers adjust to trade or any kind of technological change. For example:
- The federal tax code’s business deduction for work-related education only applies to one’s current job and not a possible new job.
- Trade Adjustment Assistance and federal job training programs are notoriously inefficient and ineffective.
Conclusion: It would be a shame if presidential politics leads to a retrenchment of our involvement and leadership in foreign trade which has so many positive benefits for the American economy.