Trade policy on election year

On election year, one area of agreement unites the major candidates: trade. Bernie Sanders brags that he’s opposed all recent trade agreements; Hillary Clinton now rejects the Trans-Pacific Partnership, President Obama’s signature trade success that she once supported; and Donald Trump blames incompetent U.S. trade negotiators for devastating job losses to China that might be cured by a 45 percent tariff on Chinese imports.

Trump’s statement pointed out one lasting discussion of free trade: employment. Some people globalization was clearly re-established with China’s entry into WTO. After this momentum, business moved to China, India, Latin America and other emerging markets, where could provide cheaper places and ways to produce goods and services for the Western economies. At the same time, American companies are seeking to maximize profits by employment of low cost foreign labor. Therefore, domestic workers in U.S have been somewhat replaced by low cost foreign workers. Since trade agreements have exacerbated this problem, campaigns are very concerned on it.

But is job disease trade trauma as he said? We could dive deep academically and practically.

At first, it should be emphasized that the level of employment is a macroeconomic issue, depending in the short run on aggregate demand and depending in the short run on the natural rate of unemployment, with microeconomic policies like tariffs having little net effect.  It is more important to debate the trade policy’s impact on efficiency, instead of phony numbers about jobs created or lost.

In a recent paper, the respected economists, David Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich and Gordon Hanson of the University of California at San Diego — estimated the loss of manufacturing jobs at 985,000 from 1999 to 2011. Many people use these number to state that a flood of Chinese imports over the past 15 years has cost crushes of U.S jobs. But that large number needs context. Over the same period, all U.S. manufacturing jobs dropped 5.8 million; the share caused by China was a bit less than one-fifth. When the economists added China’s impact on non-manufacturing firms, the job decline more than doubles to 2.4 million. Still, that’s less than 2 percent of total payroll employment of 131 million in 2011 and 143 million now. The fact is that a more powerful job destroyer was the Great Recession.

In addition, there are export jobs. With U.S. exports about 80 percent of imports, they offset most — though not all — of trade-related job loss. In 2014, exports supported 11.7 million jobs, says the Commerce Department: 7.1 million for goods (aircraft, medical equipment) and 4.6 million for services (software, films).

Moreover, Friday’s “Employment Situation” report from the Bureau of Labor Statistics (BLS) was more of what their accusation was wrong. We have seen over the past six months: more people working, but each worker producing less and earning less. By way of comparison, RGDP per FTE worker growth rates were 1.81% under Bill Clinton and 1.42% under George W. Bush. Stagnant RGDP per FTE worker means that the new jobs that are being created can’t be very good ones. It is clear that America’s economic disease is investment anemia-U.S isn’t accumulating real nonresidential assets fast enough to produce strong growth in RGDP, jobs, and income. Unfortunately, to the untrained eye (say, Donald Trump’s), the symptoms of investment anemia can look a lot like issues relating to foreign trade. Even more unfortunately, the kinds of remedies that political witch doctors like to prescribe for trade problems would only make our sick economy even sicker.


*FTE (full-time-equivalent) jobs = full-time jobs + 0.5 part-time jobs



Louis Woodhill.”Our Jobs Disease Isn’t Trade Trauma, It’s Investment Anemia”

Robert Samuelson.”Campaigns question U.S. trade policies”



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