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The campaign debate over trade continues to evolve. Calls by Donald Trump to raise a tariff wall around the U.S. market or by Bernie Sanders to rip up trade agreements are receiving close scrutiny. And it isn’t pretty.
For example, an analysis of Trump’s proposal to slap double-digit tariffs on imports from China and Mexico — prepared by Moody’s Analytics at the request of The Washington Post — found doing so would cause “up to 4 million American workers" to lose their jobs. The American Action Forum estimated it could cost American consumers $250 billion per year.
And so, helpfully, the public debate has shifted. As The New York Times recently editorialized:
It is impossible for the United States to seal its economy from the rest of the world; nor should it want to. But elected leaders can make sure that the competition among countries is fair and enact policies that mitigate inequality while giving workers who are hurt by trade the help they need.
A cover story in National Review by Scott Lincicome concludes that today’s trade debate has revealed “an important kernel of truth about America’s labor market and its distressing lack of dynamism — a problem exposed, though certainly not caused, by free trade.”
And so a debate is underway on whether and how government programs that provide adjustment assistance for workers displaced by changes in the economy need to be modernized — whether those dislocations are caused by trade, technological change, or other factors.
First, it’s critical to note that the economic consensus on trade has hardly shifted. After all, economists have long agreed that trade creates losers alongside winners — but it certainly creates many more winners and big net gains.
The consensus view has long been much like that of a recent study of the Trans-Pacific Partnership (TPP) by Robert Z. Lawrence and Tyler Moran of the Peterson Institute for International Economics. They estimate the benefits of the TPP “are more than 100 times the costs” and will be widely shared, with slightly larger gains for poor and middle-class households than for the wealthy.
But the most widely cited paper in today’s trade debate is “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” by economists David H. Autor, David Dorn, and Gordon H. Hanson. They examined “China’s emergence as a great economic power” and found that “alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences.” These include persistent unemployment in communities exposed to foreign competition.
But their prescription isn’t protectionism; it is to improve the government’s woefully ineffective training and transition programs to assist those who need it.
As Autor recently told Politico: “We’re not going to ‘restore’ most of those labor-intensive jobs in textiles, leathers, toys, rubber products and commodity furniture that were lost in the ‘90s and 2000s. … We’re not going to turn back the clock — and certainly slapping on huge tariffs would accomplish nothing constructive.”
And as Hanson told The New York Times earlier this year: “The problem is not trade liberalization. … The problem is that labor-market adjustment is too slow.”
That’s not all. Autor, Dorn and Hanson also have weighed in on the TPP itself. In a Washington Post column, they wrote, “We believe blocking the TPP on fears of globalization would be a mistake.” They explain:
There are several reasons to support the TPP despite globalization concerns. First, the TPP — which seeks to govern exchange of not only traditional goods and services, but also intellectual property and foreign investment — would promote trade in knowledge-intensive services in which U.S. companies exert a strong comparative advantage. Second, killing the TPP would do little to bring factory work back to America. Third, and perhaps most important, although China is not part of the TPP, enacting the agreement would raise regulatory rules and standards for several of China’s key trading partners. That would pressure China to meet some of those standards and cease its attempts to game global trade to impede foreign multinational companies.
Unfortunately, the U.S. government’s training and transition assistance programs are a mess, as Lincicome details. He cites Charles Kenny, author of The Upside of Down: Why the Rise of the Rest is Good for the West, who told the Financial Times: “In short, evidence suggests that about one in four hundred federal dollars helped workers retrain out of [trade-]exposed industries and the other $399 helped them retire or invalid out of those industries and the workforce completely.”
What should be done? While the vast majority of Americans benefit from international trade and investment, the Chamber has long acknowledged that some are hurt — and they should be helped.
But there’s more that can be done. Government and business must work together to ensure that displaced workers are retrained and can transition to new work. There’s a great deal to be said about this issue, and the Chamber will be addressing it in the weeks ahead.
This is important work, and it demands attention. But it doesn’t change the reality: We can’t stand still on trade.