Note that the level of manufacturing employment, while it has cyclical ups and downs, is nearly constant from 1970 to 2000 at around 17 million. It plunged in the early years of the last decade as the trade deficit exploded. Most of the fall in employment was before the collapse of the housing bubble in 2008. This is what happens when a trade deficit increases from around 1.5 percent of GDP, the mid-1990s level, to almost 6.0 percent of GDP at its peak in 2005-2006 (over $1.1 trillion in today’s economy).
In his article Brad does a bit of slight of hand on this rise in the trade deficit, attributing it to an over-valued dollar rather than trade agreements like NAFTA. I agree with him on this, but I think the ignorant masses can be excused for failing to recognize that the jobs lost to trade were due to the Clinton administration’s dollar policy rather than its trade deals.
So why did American trade policy make such a big difference, even though tariffs didn’t fall? Pierce and Schott can’t say for sure, but they speculate that it has to do with patterns of investment.
Giving Chinese companies confidence that tariffs would stay low encouraged them to invest in production capacity aimed at supplying the American market. And giving American companies confidence that tariffs would stay low encouraged them to build supply chains around Chinese manufacturers.
“As we speak, China is negotiating a trade deal that would carve up some of the fastest-growing markets in the world at our expense, putting American jobs, businesses and goods at risk.”
Actually this is not the way the economy works. If China reduces trade barriers with other countries in Asia, allowing the region to grow more rapidly, then it should also make the United States more prosperous. The region would be a bigger source of demand for U.S. exports and a more efficient provider of goods and services to the United States. That was exactly the logic of the Marshall Plan that helped to rebuild West Europe after World War II. Greater economic integration in the region, even if engineered in part by China, is something that the United States should applaud, not fear. Continue reading
The time has come to embrace a different logic, that of “exchange of policy space.” Poor and rich countries alike need to carve out greater space for pursuing their respective objectives. The former need to restructure their economies and promote new industries, and the latter must address domestic concerns over inequality and distributive justice. This requires placing some sand in the wheels of globalization.
The best way to bring about such institutional re-engineering would be to rewrite multilateral rules. For example, the “safeguards” clause of the WTO could be broadened to allow the imposition of trade restrictions (subject to procedural disciplines) in instances where imports demonstrably conflict with domestic social norms. (I discuss the specifics in my book The Globalization Paradox.) Similarly, trade agreements could incorporate a “development box” to provide poor countries with the autonomy they need to pursue economic diversification.
Roeline Knottnerus, “The EU trade and Investment Agenda“, Transnational Institute, 26 March 2013
The EU’s launch of negotiations for Deep and Comprehensive Free Trade Agreements (DCFTAs) with four Arab countries in transition – Egypt, Jordan, Morocco and Tunisia – looks set to entrench an economic model that was one of the root causes of the Arab Spring.
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