WHY IT MATTERS: Trade
WASHINGTON — In this angry election year, many American voters are deeply skeptical about free trade — or downright hostile to it.
The backlash against trade threatens a pillar of U.S. policy since World War II: Through trade pacts and institutions like the World Trade Organization, the United States has sought to rip down barriers to global commerce, including quotas and taxes on imports.
Economists argue that the benefits of free trade outweigh the costs. Imports cut prices for consumers, and exposure to foreign competition makes American firms and the overall U.S. economy more efficient. There’s a geopolitical angle, too: Countries that do business with each other are less likely to go to war.
Free trade, it seemed, paid off.
But doubts lingered, especially as China emerged as an economic power. China overwhelmed the world with hundreds of millions of low-paid factory workers who could crank out products for less than just about anybody else. And critics charge that China doesn’t play by the rules — unfairly subsidizing exporters, manipulating its currency to give them a competitive edge and condoning the theft of U.S. trade secrets. Whatever the reasons, the United States last year ran a $334 billion trade deficit with China — a big chunk of America’s $500 billion total trade deficit.
Even economists are having second thoughts. David Autor of the Massachusetts Institute of Technology, Gordon Hanson of the University of California, San Diego, and David Dorn of the University of Zurich looked at the American workers most exposed to competition from China. They got an unpleasant surprise. Instead of finding jobs in newer, growing industries, as economic theory dictated, Americans thrown out of work by the “China shock” bounced from job to job and suffered a drop in lifetime pay. China’s rise has “challenged much of the received empirical wisdom about how labor markets adjust to trade shocks,” they concluded.
WHERE THEY STAND
Presidential candidates Donald Trump and Hillary Clinton oppose the trade agreements that are a hallmark of U.S. economic policy. Clinton has broken with President Barack Obama by opposing the Trans-Pacific Partnership, an agreement that Obama’s administration hammered out with 11 Pacific Rim countries (excluding China) and that awaits congressional approval. Awkwardly for Clinton, she had called the agreement the “gold standard” for trade deals when she was Obama’s secretary of state.
Trump vows to tear up existing trade deals, such as the North American Free Trade Agreement with Mexico and Canada, and to slap huge tariffs on Chinese imports. He traces America’s economic problems to bad trade deals reached by clueless U.S. negotiators outfoxed by craftier foreigners. The author of “The Art of the Deal” says he can do better.
WHY IT MATTERS
Foreign competition is one reason America has lost 3.4 million factory jobs since China joined the World Trade Organization and became a bigger part of global trade in 2001. It’s also partly responsible for stagnant American wages. Adjusting for inflation, U.S. households earn less than they did in 1997.
But trade isn’t the only culprit: Technology allows factories to cut jobs and still increase production.
Despite the campaign rhetoric, trade deals have far less impact on jobs than forces such as automation and wage differences between countries. The controversial Pacific deal, for instance, probably would have a negligible impact on American employment, the International Trade Commission concluded.
Trump’s plans to impose punitive tariffs would risk setting off a trade war and driving up prices for American consumers. Pulling back from trade agreements could also reduce America’s diplomatic influence. The Pacific agreement, for instance, is aimed partly at countering China’s clout in Asia.