Free trade doesn't have to dev­as­tate work­ers

The Pak Banker - - OPINION - Justin Fox

THE past decade and a half have been tough for a lot of Amer­i­can work­ers. Real me­dian house­hold in­come in 2014 was more than $4,000 below the 2000 level. The share of Amer­i­can adults with jobs is well below the 2000 level, too. One likely cause of this long malaise has been China's epic rise as a man­u­fac­tur­ing ex­porter. Head­line-grab­bing new re­search has found­de­pressed wages and in­creased job churn among U.S. work­ers in in­dus­tries with big in­creases in im­ports from China, and last­ing ill ef­fects for the hard­est-hit lo­cal la­bor mar­kets. Af­ter cen­turies of em­pha­siz­ing the ben­e­fits of free trade, main­stream econ­o­mists have started pay­ing more at­ten­tion to the pos­si­ble down­sides.

So have politi­cians. This isn't the first time that trade has been a big is­sue in a pres­i­den­tial cam­paign, but it may be the first time since Her­bert Hoover's elec­tion in 1928 that the likely Repub­li­can nom­i­nee­has been this vo­cal an ad­vo­cate of higher trade bar­ri­ers. What's more, a Demo­crat with sim­i­lar views on trade is still very much in the race.

This trade-bash­ing is un­der­stand­able, in light of eco­nomic con­di­tions. But it also made me cu­ri­ous. There are other wealthy na­tions in which me­dian in­comes and em­ploy­ment-topop­u­la­tion­ra­tios have held up much bet­ter than in the U.S. since 2000, and where by cer­tain mea­sures liv­ing stan­dards are now higher than in the U.S. Can any of their suc­cess be chalked up to higher trade bar­ri­ers?

Well, let's see. As a proxy for eco­nomic suc­cess I'll use the United Na­tions' Hu­man De­vel­op­ment In­dex, which com­bines per­capita in­come (not me­dian in­come) with health and education in­di­ca­tors to give a more com­plete pic­ture of how peo­ple are do­ing. Th­ese are the top eight coun­tries in the most re­cent HDI rank­ing.

Now, here are those same eight coun­tries as ranked by the In­ter­na­tional Cham­ber of Com­merce's Open Mar­kets In­dex, which mea­sures coun­tries on trade pol­icy, trade in­fra­struc­ture, open­ness to for­eign di­rect in­vest­ment and ob­served trade open­ness.

Not a lot of pro­tec­tion­ists above the U.S. on that list, are there? In fact, the U.S. is by far the least open to trade of the top 15 coun­tries in the HDI rank­ing.

The UN's in­equal­ity-ad­justed Hu­man De­vel­op­ment In­dex might give an even bet­ter pic­ture of how middle- and lower-in­come peo­ple are far­ing in dif­fer­ent coun­tries -- but it would also make for way too big a ta­ble to pub­lish here, be­cause on it the U.S. is tied with Poland for 27th place. Of the 27 coun­tries that out­ranked or tied with the U.S. in in­equal­ityad­justed HDI, only three (Ja­pan, Spain and Italy) had lower trade-open­ness scores. Free trade and widely shared pros­per­ity are clearly not in­com­pat­i­ble.

What is it, if not erect­ing trade bar­ri­ers, that th­ese other coun­tries are do­ing dif­fer­ently from the U.S.? One an­swer comes from Ge­orge­town Univer­sity fi­nance pro­fes­sor Pi­etra Rivoli, au­thor of the book "The Trav­els of a T-Shirt in the Global Econ­omy," in a New York Times ar­ti­cle last week:

"You have much more neg­a­tive sen­ti­ment about trade in the U.S. than you do in pretty much any other wealthy coun­try, and they've lost their T-shirt jobs, too," Ms. Rivoli said. "What's go­ing on there is that in those coun­tries, which are even more ex­posed to trade than we are, those coun­tries have a big­ger safety net."

An­other pos­si­bil­ity is that gov­ern­ments in other wealthy coun­tries, while open to trade, are be­ing more strate­gic than the U.S. about how they pur­sue it. That is, well-cho­sen fis­cal, education and in­vest­ment poli­cies have put them in a bet­ter po­si­tion to com­pete. Small coun­tries, which are well-rep­re­sented on global well­be­ing and­com­pet­i­tive­ness lists, seem es­pe­cially adept at this.

There are a few coun­tries with rel­a­tively high trade bar­ri­ers that do pros­per. As al­ready noted, Ja­pan has a lower trade-open­ness score than the U.S. So does China, which ranks 59th out of 75 coun­tries on the list. Both coun­tries have fol­lowed a strat­egy -- as the U.S. long did -- of pro­tect­ing and pro­mot­ing cer­tain do­mes­tic in­dus­tries to help them suc­ceed in global mar­kets. This ap­proach has worked bril­liantly for catch­ing up with the rest of the world. It's not clear that it's the best one for an al­ready wealthy na­tion look­ing to con­tinue to pros­per and grow.

What is the best strat­egy for a coun­try in such a po­si­tion? I don't think any­body re­ally knows the an­swer, so de­bate over trade pol­icy among politi­cians and econ­o­mists is prob­a­bly a healthy de­vel­op­ment af­ter years of con­sen­sus.

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