International trade and economic disruption in context

Paul Romer (Nobel ’18) offered a lapidary aphorism a few years ago: “Everyone wants progress. No one wants change. ”

But of course, the process of economic progress is inevitably irregular. It doesn’t affect everyone in the same way. International trade is part of the process of economic progress, but no one wants change. Adam S. Posen rebuffed the resulting dynamic in “The Price of Nostalgia: America’s Self-Defeating Economic Retreat.” (Foreign Affairs, May / June 2021). He writes:

There is a widespread belief that the United States has sacrificed justice for the sake of economic efficiency, so it is time to correct the imbalance by withdrawing from globalization. It is a largely false account. The United States has been withdrawing from the global economy for 20 years, and for most of that time America’s economic dynamism has waned and inequalities in the country have increased more than in the economies that are opening up. Workers are less mobile. Fewer businesses have been created. Corporate power has become more concentrated. Innovation has slowed down. Although many factors contributed to this decline, it was likely reinforced by the withdrawal of the United States from global economic exposure.

There is a lot to think about in the article, and there are parts that I would agree more with than others. Here I want to highlight two of the points raised by Posen.

The first is that there are a wide variety of reasons for economic disruption and job loss: new technologies, domestic competition, mismanagement, changes in consumer preferences for goods and services, and many others. For a huge and well-diversified economy like the United States, with its huge domestic market, international trade disruptions are only a relatively small part of the picture. Posen writes:

After much debate, economists agreed on an estimate of the upper limit of the number of manufacturing jobs in the United States that were lost to Chinese competition after 1999: at most two million on one hand. -work of 150 million. In other words, from 2000 to 2015, the Chinese shock was responsible for the displacement of around 130,000 workers per year. This equates to a slice of the average churn rate in the U.S. job market, where around 60 million layoffs typically occur each year. Although about a third of these total terminations are voluntary in an average year, and others are due to individual circumstances, at least 20 million per year are due to company closures, restructuring or relocation of employers. Think of the job flight from city centers or the displacement of secretarial and office workers due to technology – losses which, for the workers concerned, are no different in terms of local impact and finality than the losses. jobs in the manufacturing sector resulting from foreign competition. In other words, for every manufacturing job lost to Chinese competition, around 150 jobs were lost due to similar shocks in other industries. But these displaced workers have had less than a hundredth of the public mourning.

An American who loses his job to Chinese competition deserves no more or less support than one who loses his job because of automation or the relocation of a factory to another state. Many jobs are unstable. The disproportionate outcry over the effects of Chinese trade ignores the experiences of many low-wage workers who experience continued churn and forgets how previous generations of workers were able to adjust when they lost their jobs because of it. foreign competition.

The other point is that the rest of the world is moving forward with globalization. In the rest of the world, export-to-GDP ratios generally rebounded after the Great Recession subsided, but not in the United States. Meanwhile, the countries of the European Union are extremely open to trade with each other, and are becoming more and more so. The European Union has expanded by 13 countries since 2000 and signs trade agreements with the rest of the world. China also maintains a strong involvement in the rest of the world economy.

I find it extremely amusing that many Americans who are fairly supportive of Social Democratic policies in Scandinavia and other European countries often seem to disagree with these countries when it comes to the importance of open trade. Posen writes:

Since World War II, the United States has viewed international economic integration as something it encourages to do. Trade agreements aimed for foreign countries to open their markets and reform their economies through competition. For a long time, this account was largely true. This has had the unfortunate effect at the national level of labeling the United States open and the rest of the world protectionist. The competition that American companies faced from overseas was seen as the result of unfair trade. These perceptions have now survived reality. It is the United States that needs foreign pressure and inspiration.

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