Does increased trade cost us jobs?
Photo: J Brickman. Source: MorgueFile
Economists have long touted trade as a way to improve economic performance that doesn’t require new technology or skills. At least that’s how it’s supposed to work. Some economists think that if inexpensive outside labor displaces too much domestic production, the exporter does better but it hurts us too much.
A new study from the St. Louis Fed examined this question. They looked at the US economy from 2000 to 2007, focusing on the effects of increased Chinese imports. They looked at State-level employment data in 22 different industries, noting how the outputs of one business are used as inputs in another, and the costs of shipping goods over time and distance.
US imports from China almost tripled during this period, growing from $8.3 to $24 billion. At the same time, manufacturing employment fell from 17 to 13 ½ million workers. Part of this decline is due to long-term trends in the economy away from manufacturing, using advanced technology like robotics, but part is due to trade, as inexpensive Chinese labor was substituted for more expensive domestic production.
The researchers found that about a million US jobs were lost because cheap imports. The computer, furniture, and metal industries were hurt the most; food and oil production were the least affected. But that’s not the end of the story. The service sector of our economy benefited from access to cheaper inputs, so they hired more workers. Consumers did better as well, spending less on goods and more on services during the period.
Source: St. Louis Fed
Overall, the US economy benefitted by almost 7% over the long run from increased imports, or almost $900 billion. The gains from trade out-weigh temporary losses as workers found new jobs in new industries, or even new parts of the country. These costs are real, and it would be wrong to ignore them. But we’re all better off when our costs fall. Lower employment in steel-making led to higher employment in education, for example.
Gains from trade are real, and can’t be ignored. When everyone does what they do best, we all do better.
Douglas R. Tengdin, CFA
Chief Investment Officer
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