Yesterday I was interviewed by BBC Radio on the anxiety rising over trade agreements. Three statements in the course of the interview were particularly striking. First, aerospace workers in California blamed trade agreements for taking their jobs and seemed to want trade stopped. Second, trade agreements are the root of nearly all problems. Third, the benefits from trade are going to the wealthy.
Each of these statements deserves extended comment as each is problematic.
Start with the aerospace workers. An interviewer went to a plant in California and talked to several employees who had struggled with keeping their jobs. One had already been laid off for an 8 month period and all were worried about their positions being outsourced to Malaysia in the future. All blamed trade for undermining their job opportunities.
But this surely gets the situation exactly the wrong way round. Most of the jobs in the aerospace sector are driven by markets outside the United States. The interview did not specify exactly what products these workers produced, but the domestic demand for aerospace will never be as large as global demand.
Absent trade, there would be very little demand for whatever rolls off the assembly lines in California. Without trade, there would be very few jobs of any kind in aerospace. The United States simply does not need that many aerospace products.
Again, without more information, it is not possible to tell exactly what these individuals actually do in the company. It is possible that, like many other manufacturing jobs in the United States and elsewhere, these jobs could very well be replaced by technology as robots and other advances decrease the number of individuals needed for tasks. Manufacturing output could remain strong or even increase, but the total number of jobs could fall.
Or, as these workers fear, it may be true that these jobs will be relocated outside the United States at some point in the future. But it is less likely that these jobs will be moved as the result of a trade agreement.
The United States simply doesn’t have that many trade agreements in place. Currently, there is no agreement with Malaysia. The Trans-Pacific Partnership (TPP), does include Malaysia, but it is not yet in force.
Companies do shift jobs overseas. This has been an issue—particularly for low wage or low skill jobs. But most of this job movement has not come about as the result of trade agreements.
The North American Free Trade Agreement (NAFTA) is typically cited as the cause of substantial job dislocations. NAFTA, however, is now more than 20 years old and most job shifts have long since taken place. The literature is also mixed on the impact overall and it is possible to find statistics to bolster claims on both sides of the argument about job losses and job creation for all NAFTA parties.
Others are eager to apportion blame to the World Trade Organization (WTO) for job losses, particularly in the wake of China’s entry into the WTO in 2001. But this is a rather odd argument overall, since the WTO includes 164 members.
Now that nearly every country of economic significance is a member of the WTO, it is hard to argue that the trade agreement called the WTO is creating job losses today.
Hence blaming trade agreements for job losses or job disruptions—particularly for the United States that has relatively few trade agreements in place and active—is inaccurate.
Finally, commentators have been making the argument lately that trade only benefits the wealthy. This is, again, a rather upside down argument. Consider the aerospace workers.
It may not be a fair assumption, but these are likely not wealthy people. Yet trade clearly benefits them directly—it is the very reason for their employment. If the border were shut down, or tariff walls erected to protect their jobs, they may lose the most. If others stopped buying American aerospace products or if US products became too expensive, their jobs would disappear.
Not everyone, of course, works in export industries. Trade still matters and actually impacts many of the less-well-off the most.
As a clear example, children’s shoes are nearly all imported and most currently come with very high tariffs. These can easily range from 20-50% for American consumers and are passed along to buyers. Sweatshirts and other clothing can include similarly high tariff costs. For lower income shoppers, these are costs borne by those least able to afford the extra expenses.
Our earlier post on how your own life is connected to trade in the first hour of the day highlights all the myriad ways trade and globalization have become imbedded into daily life. It is not just the wealthy that gather these benefits. Trade affects us all.
This is not to say that trade brings only positive benefits to everyone, of course. Trade can be quite disruptive. Globalization and technological change have clearly brought about substantial anxiety in many parts of the world. Creating programs to assist individuals and communities at risk from disruption is a critical challenge for governments and leaders everywhere.
But we must be very careful not to place blame on the wrong things. Trade is responsible for job creation and growth as well as loss. It is not possible to stop trade and assume that only the job loss side will be affected.
The Peterson Institute for International Economics has a fascinating map that forecasts job losses under a possible trade war (under Donald Trump’s economic plan). Of note here is how many jobs could be lost in states that are not traditionally assumed to be tied to exports. Many of these jobs are even in sectors or industries like retail, distribution and F&B that have long been assumed to be fairly immune.
Trade agreements can be part of the solution. At the Asian Trade Centre, of course, we have a vested interest in creating better ones, but even we recognize that agreements are only part of the much larger set of issues attached to globalization.
Finally, trade is not just for the wealthy. We forget this at our peril.
***Talking Trade is written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***