Free trade key to U.S. global po­si­tion

Baltimore Sun - - COMMENTARY - By Sharon Xiao­hui Wu Sharon Xiao­hui Wu is an eco­nomics doc­toral stu­dent and teach­ing as­sis­tant at Ge­orge Wash­ing­ton Univer­sity. Her email is xi­ao­hui_wu@gw­mail.gwu.edu.

There is at least one con­cept that all pres­i­den­tial can­di­dates agree on: Free trade is bad. Both Hillary Clin­ton and Don­ald Trump are against the Trans-Pa­cific Part­ner­ship (TPP), al­though this trade agree­ment is specif­i­cally de­signed to “con­tain” China, which alone should have made it a crowd-pleaser.

But free trade is not only un­pop­u­lar among politi­cians and union work­ers. As an eco­nomics teacher, I asked col­lege stu­dents about their opin­ions on free trade, and those stu­dents who spent their first back-toschool week study­ing com­par­a­tive ad­van­tage and gains of trade day in and day out said free trade was a good idea but should not be the pol­icy of this coun­try. They pre­fer to im­pose tar­iffs and “pun­ish” dis­hon­est trade part­ners. This grow­ing trend of pro­tec­tion­ism, as pop­u­lar as it is, should not be the pre­dom­i­nant be­lief of a coun­try that once thrived on trade and prides it­self on be­ing a global leader.

Free trade is per­haps the sin­gle best es­tab­lished the­ory in eco­nomics. For two coun­tries with tech­no­log­i­cal dif­fer­ences, by spe­cial­iz­ing in the goods they have com­par­a­tive ad­van­tage in and trad­ing with each other, both coun­tries have more to con­sume. A coun­try where dif­fer­ent re­sources are dif­fer­ent in their abun­dance level will ex­port goods uti­liz­ing its abun­dant re­source in­ten­sively. In ei­ther case, world out­put in­creases and con­sumers have more va­ri­eties to choose from. On the pro­duc­tion side, trade opens up mas­sive in­ter­na­tional mar- kets, so that more pro­duc­tive firms ex­pand while less com­pet­i­tive ones exit, which en­hances the over­all pro­duc­tiv­ity of an in­dus­try.

The neg­a­tive ef­fect of trade bar­ri­ers is also well doc­u­mented. Tar­iffs and quo­tas lead to ex­ces­sive do­mes­tic pro­duc­tion and con­tracted do­mes­tic con­sump­tion with a higher price level, gen­er­at­ing a net loss in wel­fare. Trade bar­ri­ers also draw sim­i­lar bar­ri­ers from for­eign coun­tries, dam­ag­ing con­sumer wel­fare among all par­ties. In ad­di­tion, a larger free trade zone is bet­ter than a smaller one be­cause it in­creases the chances of im­port­ing from the most pro­duc­tive coun­try, in­stead of from mem­ber coun­tries that charge higher prices.

Re­cent num­bers show that 65 per­cent of Amer­i­cans fa­vor im­port re­stric­tion poli­cies, while in a sim­i­lar poll in 2000, 56 per­cent of Amer­i­cans con­sid­ered trade as an op­por­tu­nity for do­mes­tic growth. The per­cent­age of econ­o­mists from lead­ing univer­si­ties who be­lieve the gains from trade out­weigh the losses is roughly 95 per­cent. This trend to­ward pro­tec­tion­ism, as well as the gap be­tween aca­demics and the pub­lic, is alarm­ing.

The pri­mary ar­gu­ment given against free trade is do­mes­tic job loss. While this may oc­cur for some in­dus­tries, it is not fair to ig­nore that trade is cre­at­ing jobs in other in­dus­tries. In the case of the U.S., with abun­dant land and cap­i­tal, agri­cul­ture and high-tech in­dus­tries flour­ish. Yet Amer­i­can politi­cians are deter­mined to “bring back” la­bor-in­ten­sive jobs, which even China is try­ing to grow away from. Such jobs are usu­ally lo­cated in in­dus­tries that pose threats to both work­ers’ health and the en­vi­ron­ment. In my­home­town, an in­dus­trial city in China, there was a high in­ci­dence of lung cancer due to the air pol­lu­tion caused by steel fac­to­ries. And Fox­conn, a ma­jor man­u­fac­turer for Ap­ple, en­closed em­ployee dor­mi­to­ries in Shen­zhen in steel wires to pre­vent jump­ing af­ter nearly a dozen work­place sui­cides. Are th­ese the kinds of jobs that are de­sired in the U.S.?

An­other con­cern is widen­ing in­come in­equal­ity. This is a real prob­lem, but it is not nec­es­sar­ily caused by trade, which cre­ates lots of la­bor-in­ten­sive jobs in China but does not help close the huge in­come gap. Prof­its and wages are drop­ping in tra­di­tional in­dus­tries glob­ally, and the best way to tackle in­come in­equal­ity is not to have more low-wage jobs but to make it pos­si­ble for work­ers to trans­fer to pros­per­ing in­dus­tries. Change of any kind is scary, but con­sider this: The era of the robot will even­tu­ally come, and all of us will need to change any­way, ei­ther our jobs, life­styles or mind­sets. The ear­lier we make that change, the bet­ter.

The world used to look at Amer­ica with sheer ad­mi­ra­tion for its open­ness and cre­ativ­ity. Now Amer­ica wants trade deals that par­tic­u­larly ben­e­fit it­self and to com­pete with de­vel­op­ing coun­tries for lowwage jobs. This sad pro­tec­tion­ism can­not make a great Amer­ica.

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