Americans are angry about trade, and a lot of politicians - especially the two Democratic presidential candidates - are eager to capitalize on it. The United States would be far better served by a serious, dare we say factbased, discussion of what is causing the dislocations in American workers’ lives, how much trade is to blame and what government can do to help.
There is no question that trade can disrupt lives. But while trade can hurt some workers, most economists believe it plays a modest role compared with other forces in the economy, including advances in technology, the decline of trade unions and the outrageously high salaries for executives. Many Americans benefit from freer trade, whether they are buying cheaper imports or exporting products.
Consider the four million manufacturing jobs lost over the last decade. That number is daunting - and the human pain behind it very real. But in most years the United States generates more jobs than it loses.
Suppose the critics are right and all those workers were displaced by cheap imports and factories moving overseas. Those lost manufacturing jobs - an average of 400,000 a year - amount to less than 3 percent of the 15 million jobs lost each year across the economy. Meanwhile, about 17 million jobs were created annually, which is why the American unemployment rate at the end of 2007 was not much different than it was at the end of 1997.
What about pay- Critics say trade drives down all blue-collar wages, making it more difficult for companies that compete with cheap imports to increase pay while the greater competition for remaining jobs can lower wages.
But no matter how hard economists look for the impact of trade on these inequities, they find it plays only a bit part. Josh Bivens of the Economic Policy Institute estimated that rising trade with poor countries increased wage inequality between college and high school graduates by about 7 percent over the past quarter-century - but the wage gap has widened by more than six times that amount over that period. And many economists think Mr. Bivens overstates trade’s impact. Robert Lawrence of Harvard University concluded that the increase in wage inequality since the 1990s had little to do with trade.
Trade’s critics overstate the threat of “cheap imports” from poor countries. Often these goods are just assembled in poor countries from components made in high-wage countries - including the United States. Moreover, many of the things imported from cheap labor markets have not been made here for a long time, so pose no threat to American goods.
So what is going on?
Economists have other explanations for the stagnation of middle incomes and the mushrooming income gap. Lawrence Katz, a Harvard economist, argues that a big part of the problem is a shortage of educated, skilled workers at a time when demand for them keeps rising. High school graduation rates are flat, and there has been a slowdown in the growth of college graduation rates, partly because of the rising cost of college. This is weighing on wages of less-educated workers while increasing the pay of the most educated.
Outrageous executive pay and excesses in financial markets also play a big part. The richest 1 percent of the population has captured more than half of the nation’s total income growth since 1993.
None of this denies that American workers are hurting. But blaming trade is not the right way to go. What the presidential candidates need to do is respect the voters, and explain the economics and outline policies that will address the true problems.
That means expanding the social safety net to help workers displaced by trade. The United States government also has to invest more in education to help produce better-prepared, better- paid graduates. To help American companies compete, it must invest in better roads and ports and address the country’s health care crisis. And it must move toward more progressive taxation to help redistribute the spoils of growth.
The candidates also need to remind workers of trade’s benefits. Trade gives companies and consumers access to cheap imports and accelerates the spread of new technologies; exporters gain access to foreign markets; foreign competition spurs innovation. According to economists at the Peterson Institute for International Economics, increased trade since World War II has added about 10 percent to American national income.
Blaming Nafta and other trade agreements for American workers’ pain may play well on the campaign trail. But it will not solve the country’s economic problems. It will only make them worse