Are barriers of trade really going to help the US?

 

Shot by a worker in the Carrier Air Conditioner (part of United Technologies) factory in Indianapolis in February, this video captured the raging national debate over trade and the future of the struggling working class.

From 2017 to 2019, the 1,900 factory jobs in Indianapolis will gradually be sent to Mexico, where wage of a manufacture worker is as low as $2.375 per hour, or $19 per day, whereas in the US, many assembly line workers makes more than $20 per hour.

Undeniably, the pursuit of free trade in recent decades by US has led to the elimination of millions of jobs (roughly 3 million after China joined WTO, Reference 3), most of which are manufacture jobs related to labor costs and out-sourcing. Also, in recent presidential debates, both Bernie Sanders and Donald Trump have gained support on attacking the free trade agreements, and both parties seem to strike accord on this issue. However, is raising trade barriers really going to help the US? The answer is not positive.

Free trade provides with Americans cheaper imports and a broader range of products, enabling more consumption with less spending and lifting the living standards of American people. What’s more, many of the products that are produced in the United States are cheaper and better because of cheaper raw materials from other countries. This thus improves the competitiveness of such products.

Yes, there are winners and losers in the game. A more open trade condition definitely faces domestic companies with more worldwide competition, and it surely displaces some people from their current jobs, which is what the video above is about. However, a more open trade also provides with America jobs and expansion opportunities in sectors where America is relatively competitive to the rest of the world, such as hi-tech, business service and internet. Research (Reference 1) shows that trade in manufacture industry has a positive contribution to job elimination even with job creation in other sectors, but this is because new jobs are higher paid.

The result is harsh for those people who lost their jobs and those who are on the edge of being laid off. But the way America should deal with it is not simply closing up trade deals and sabotaging everyone else’s well-being. Raising trade barriers may create a certain number of jobs, but it lifts the prices of imported goods, which lowers the living standard of most people. Also, such behavior may cause retaliation from trade partners, further worsening the total welfare.

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A farm activist walks with his alpaca during a protest of the TPP (Trans-Pacific Partnership) held outside the Office of the US Trade Representative in Washington, November 2015. REUTERS/Kevin Lamarque

Notice that the positive effects of free trade made a huge contribution to the U.S. economy over the past decades. From 1990 to 2000, the U.S. economy grew by more than 23 percent, adding more than $2.1 trillion to GDP and raising the wealth of the average American consumer by more than $5,500. Such improvements would not have happened if there had been no signing of the North American Free Trade Agreement or the establishing of WTO.

Instead of raising trade barriers like tariff, implementing wage insurance, job training programs, and other projects to support the labor force to relocate their working power seems like a more plausible way for the government to deal with friction caused by international trade.

Reference

  1. Shiferaw, Admasu, and Degol Hailu. Job Creation and Trade in Manufactures: Industry Level Analysis Across Countries. No. 167. 2015.
  2. http://www.cnbc.com/2016/03/11/heres-why-everyone-is-arguing-about-free-trade.html
  3. http://www.epi.org/publication/china-trade-outsourcing-and-jobs/
  4. http://www.nytimes.com/roomfordebate/2016/03/17/are-trade-agreements-good-for-americans
  5. http://www.cnbc.com/2016/03/19/new-york-times-digital-carrier-workers-see-costs-not-benefits-of-global-trade.html
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One Response to Are barriers of trade really going to help the US?

  1. wjzhang says:

    Maybe US can grab the opportunities of employment from such countries as China, Mexico and India so that Donald Trump’s may have won him votes in Republican primaries but they would likely backfire, severely disrupting U.S. manufacturers that increasingly depend on global supply chains.The cost would be much larger. As professor Peter said, It would take years for U.S. industry to rebuild supply chains devastated by sudden tariff hikes on Chinese and Mexican goods and any retaliatory measures. The heavy tariff will be transferred to the manufactures due to the higher cost and also to the consumers, who would have less purchasing power. The circular would finally drag US economy into a recession.

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