Debunking Myth #6: “Global trade is good for everyone!”

BUNK!

Friends,

Welcome back to our Friday debunking series, taking on conventional economic wisdom.

Today, I want to examine the dominant view that global trade is good for everyone. (Please click on our video, above.)

Many economists believe in the doctrine of comparative advantage, which posits that trade is good for all nations when each nation specializes in what it does best. 

But what about costs to workers and the environment? 

What if a country’s comparative advantage comes from people working under dangerous or exploitative conditions? Or preventing them from forming labor unions? Or allowing employers to hire young children? 

My old boss Bill Clinton called globalization “the economic equivalent of a force of nature, like wind or water.”

But “globalization” is not a force of nature.

Global trade is structured by rules negotiated between nations about which assets will be protected and which will not. 

These rules determine who benefits from and who is harmed by trade. 

Over recent decades, trade deals such as the North American Free Trade Act and agreements under the World Trade Organization have protected the assets of U.S. corporations, including intellectual property.

For example, if another nation adopts strict environmental regulations that reduce the value of U.S. energy assets in that country, U.S. oil companies can seek compensation for their reduced profits.

Trade deals have also benefited the pharmaceutical industry with extended drug patents. They have benefited Wall Street bankers by ensuring they can move capital into and out of countries regardless of local banking laws.

And trade deals have protected Big Agriculture.

Yes, American consumers benefit from lower priced goods from China, Mexico, and other countries where wages are lower than those in the United States.

But trade deals have caused millions of Americans to lose their jobs and caused the wages of millions more to stagnate or decline.

Between 2000 and 2017, a total of 5.5 million manufacturing jobs vanished from the United States, partly due to increasing imports, mostly from China.

You can trace a direct line from these trade deals and the subsequent job or wage losses to the rise of Donald Trump in 2016.

A 2021 study documented steep job losses starting in the mid-1990s in counties tied to industries exposed to competition from Mexico. Most of these counties had long voted Democratic. By the year 2000, they tilted toward Republicans in House elections.

More manufacturing jobs were lost after China joined the World Trade Organization and began assembling and exporting products to the U.S. (many of them under the brands of U.S. corporations).

College-educated Democrats supported these trade deals, well-suited as college graduates were to a tech-heavy globalized economy that rewarded their insights and skills. But the party base of blue-collar workers without college degrees preferred to protect their old jobs, even if that meant somewhat higher prices.

As the Democratic platform moved against their preference, they moved to the GOP. Economists have estimated that, if America had imported half of what China exported to us during these years, four key states — Michigan, Wisconsin, Pennsylvania, and North Carolina — would have swung Democratic in 2016, delivering their electoral votes and the presidency to Hillary Clinton.

Whether globalization is good or bad depends on who gets most of its benefits and who pays most of its costs. Theoretically, the winners from trade could compensate the losers and still come out ahead. As a practical matter, the winners didn’t. And America failed to devise a way to make them. Too many American workers got shafted.  

Global trade on its own is neither good nor bad. But the way trade is now conducted protects the wealth of those who already have it, and burdens those who don’t.