International Trade and Economic Disruption in Context

International Trade and Economic Disruption in Context

Timothy Taylor 23/04/2021 1
International Trade and Economic Disruption in Context

Paul Romer (Nobel '18) offered a pithy aphorism a few years ago: "Everyone wants progress. Nobody wants change."

But of course, the process of economic progress is inevitably lumpy. It doesn't smoothly affect everyone in the same way. International trade is one part of the process of economic progress, but nobody wants change. Adam S. Posen pushed back against the resulting dynamic in "The Price of Nostalgia: America’s Self-Defeating Economic Retreat" (Foreign Affairs, May/June 2021). He writes: 

There is a popular notion that the United States has been sacrificing justice in the name of economic efficiency, and so it is time to correct the imbalance by stepping back from globalization. This is a largely false narrative. The United States has been withdrawing from the world economy for 20 years, and for most of that time, U.S. economic dynamism has been falling, and inequality in the country has risen more than it has in economies that were opening up. Workers are less mobile. Fewer businesses have been started. Corporate power has grown more concentrated. Innovation has slowed. Although many factors have contributed to this decline, it has likely been reinforced by the United States’ retreat from global economic exposure. 

There's a lot to reflect on in the article, and there are parts of it I would agree with more than others. Here, I want to emphasize two of the points that Posen makes. 

One is that there are a wide variety of reasons for economic disruption and job loss: new technology, domestic competition, lousy management, shifts in consumer preferences for goods and services, and many more. For a huge and well-diversified economy like the United States, with its enormous internal market, the disruptions related to international trade are a relatively small part of the picture. Posen writes: 

After much debate, economists have agreed on an upper-bound estimate of the number of U.S. manufacturing jobs that were lost as a result of Chinese competition after 1999: two million, at most, out of a workforce of 150 million. In other words, from 2000 to 2015, the China shock was responsible for displacing roughly 130,000 workers a year. That amounts to a sliver of the average churn in the U.S. labor market, where about 60 million job separations typically take place each year. Although approximately a third of those total job separations are voluntary in an average year, and others are due to individual circumstances, at least 20 million a year are due to business closures, restructurings, or employers moving locations. Think of the flight of jobs from inner cities or the displacement of secretarial and office workers due to technology—losses that, for the workers affected, are no different in terms of local impact and finality than the manufacturing job losses resulting from foreign competition. In other words, for each manufacturing job lost to Chinese competition, there were roughly 150 jobs lost to similar-feeling shocks in other industries. But these displaced workers got less than a hundredth of the public mourning.

An American who loses his job to Chinese competition is no more or less deserving of support than one who loses his job to automation or the relocation of a plant to another state. Many jobs are unsteady. The disproportionate outcry about the effect of Chinese trade ignores the experiences of the many more lower-wage workers who experience ongoing churn, and it forgets the way that previous generations of workers were able to adapt when they lost their jobs to foreign competition.

The other point is that the rest of the world is going ahead with globalization. Around the rest of the  world, export/GDP ratios have generally bounced back after the decline during the Great Recession, but not in the US.  Meanwhile, countries within the European Union are extremely open to trade with each other, and becoming more so.  The European Union has expanded by 13 countries since 2000, and is signing trade agreements with the rest of the world. China is maintaining high involvement with the rest of the global economy, too. 

It's grimly amusing to me that many Americans who are quite supportive of social democratic policies in Scandinavian and other European countries often don't seem to agree with those countries when it comes to the importance of open trade. Posen writes: 

Since World War II, the United States has approached international economic integration as something it encouraged others to do. Trade deals were framed as being about foreign countries opening their markets and reforming their economies through competition. For a long time, this narrative was largely true. It had the unfortunate effect domestically, however, of characterizing the United States as open and the rest of the world as protectionist. The competition that U.S. firms faced from abroad was seen as the result of unfair trade. Those perceptions have now outlasted the reality. It is the United States that needs foreign pressure and inspiration.

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  • Peter Wilson

    Interesting article

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Timothy Taylor

Global Economy Expert

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

   

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