Global Trading Places

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.

Source: FRED

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
Phone: 603-224-1350
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By | 2017-07-17T12:22:45+00:00 June 9th, 2015|Global Market Update|1 Comment

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

One Comment

  1. GP June 9, 2015 at 9:28 am - Reply

    No question that consumers benefitted. Two comments, though: What was the average wage of the jobs gained versus those lost? (probably lower) The time period of the St. Louis Fed study (2000-7) includes a period with a significant increase of financial sector jobs and non-construction real estate related jobs — look what those jobs brought us! This second point is sort of a side issue to the global trade debate, but could have impacted the results of the study. Not clear what the long term benefits of global trade will be, given the huge wage disparities. So far, it looks like convergence for the average worker. And….the low wage countries are trying to move up the value chain (engineering, design, etc.).

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