Is trade bad for American companies, workers and consumers—especially trade with China? President Donald Trump appears to think so.
During a 2010 television interview, Trump said, “I would love to have a trade war with China.” Six years later on the campaign trail, he railed against the U.S. trade deficit as “not some natural disaster,” but a “politician-made disaster,” and called the North American Free Trade Agreement (NAFTA), “the worst trade deal in history.”
As president, Trump has declared, “We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”
Nearly all economists agree that trade is good for the overall welfare of societies and countries. In this three-part Sinology series, we highlight that American manufacturing remains quite healthy, with industrial output at close to record levels. What has declined is manufacturing employment, leading to the popular (but incorrect) perception that American manufacturing is in trouble. In fact, the decline in such jobs is largely the result of good news: rising productivity.
Change—primarily from advances in automation, and from shifts in consumer spending preferences—has always led to labor market volatility. Some occupations expand and thrive, others fade away, and brand new occupations appear. But, technology, not trade, is the main driver of this trend.
We need to acknowledge, however, that over the last 15 years, a rapid rise in U.S. imports from China added to that labor market volatility, especially in labor-intensive sectors such as garments and furniture.
But China’s 2001 entry into the World Trade Organization (WTO) has not “enabled the greatest jobs theft in history,” as Trump has claimed.
It is also important to recognize that trade with China (and the rest of the world) is not a zero-sum exercise. U.S. workers and firms benefit significantly from exports to China. Since China joined the WTO, U.S. exports to China rose by 500%, while U.S. exports to the rest of the world were up by only 90%. One study found that U.S. exports to China directly and indirectly supported 1.8 million new jobs in 2015.
While U.S. firms continue to battle against non-tariff barriers and non-transparent government regulatory policy in China, many American companies have done well in that market. GM, for example, sold almost 4 million vehicles in China last year, and over the last five years, Boeing delivered more aircraft in China than in the U.S.
How can we help workers who have lost their jobs as a result of technological advances or imports? Protectionist policies are not the answer, as they would not bring back those jobs, and would lead to retaliation, which would reduce U.S. exports and have a negative impact on the many American jobs they support. Protectionism would also hurt American consumers, by raising prices and reducing choices.
Focusing on the U.S. trade deficit is also not a solution, as that deficit is determined by balances between savings and investments, rather than by trade policy. The trade deficit also has little impact on employment.
Instead, the U.S. government needs to do a better job supporting the small minority of the workforce that has been hurt by import competition, and a better job helping Americans learn the skills required by sectors where the U.S. retains a comparative advantage.
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