Trade is a fundamental form of cooperation. When a customer buys tomatoes at a farmers’ market, both parties gain from the voluntary transaction. It is a win-win activity. Similarly, international trade results in net gains for people in both trading countries.
The advantages of trade are reflected in the higher incomes of countries most open to trade. It is no coincidence that the United States is one of the richest countries in the world and also one of the largest trading countries. Conversely, the poorest countries in the world have imposed the most stringent barriers to trade. North Korea is completely closed to the world, and it is one of the world’s poorest nations. However, its neighbor South Korea is both prosperous and a major trader.
In spite of the contribution of trade to prosperity, there has been a dramatic increase in opposition to trade. The nominees of the two major American political parties actively advocate protectionism. They have promised that blocking trade will produce more jobs and/or higher wages for American workers. Only the candidate from the small Libertarian party advocates freer trade. This surge of protectionism contrasts with the policies advocated by most major presidential candidates since 1932.
The attempt to gain jobs by limiting imports has been tried before with disastrous results. An extreme example was the Smoot-Hawley tariff of 1930 that followed the stock market crash of 1929. Its proponents promised more jobs, but the result was just the opposite. Smoot-Hawley raised U.S. tariffs to the highest level in history, but partner countries retaliated with higher tariffs against U.S. goods. Unemployment rose to its historical high of 25 percent, and a recession was converted into the Great Depression. This crude attempt to raise employment is widely regarded as one of the greatest policy blunders in the history of the country.
What is the source of political anxiety about jobs? The problem cannot be extraordinarily high unemployment, since the latest unemployment rate of 4.9 percent is well below the post-World War II average. Politicians focus on job losses in the manufacturing sector, and they claim that getting tough with trading partners will bring these manufacturing jobs back to the U.S. Here their diagnosis is wrong.
Automation has destroyed many more specific jobs than trade, and higher tariffs will not bring back jobs eliminated by automation. Job losses in U.S. manufacturing began in 1980, long before China became a major trading country and before NAFTA was implemented. Since 1980, manufacturing employment has fallen from about 18 million workers to about 12 million, but manufacturing production continued to increase. As a result of technical change and automation, production per worker continued to increase.
Consumers enjoyed more manufactured products, but fewer workers were needed to produce a unit of these goods. Automated jobs will not return. An 18th century British textile worker, Ned Ludd, tried to protect jobs by destroying new textile machinery, but he did not succeed. Modern Luddites have discovered that employers find machinery that raises worker productivity irresistible. Instead, modern politicians try to save manufacturing jobs by blocking trade.
Technical change has been biased toward eliminating jobs of workers with middle levels of education and skills. As a result, employment of middle-skill workers has grown slowly or declined relative to employment growth for high- and low-skill workers. This process has been called “hollowing out” of the labor force. Assembly line workers are examples of workers harmed by innovations. Since middle-skill workers also received middle level wages, technical change has increased inequality of earnings among workers.
Change is unavoidable in a growing economy, and workers must adapt to the changing pattern of demand for skills. Instead of blocking innovation or trade, a more productive response is for workers to adapt to the new pattern of demand. Specific jobs are regularly eliminated, but new jobs are created. In the last quarter of 2015, 6.8 million workers left jobs, but 7.8 million workers took new jobs. To qualify for new jobs, some workers had to acquire new skills and move to new locations. Skills can be acquired in schools or on jobs, but in a dynamic economy, education is a lifelong process. A large part of today’s work force is employed in occupations that did not exist decades ago.
Blaming trade for labor market problems caused by automation is a mistake. Blocking trade would deprive us of the lower cost products, greater product variety and many useful ideas that come from international trade.
Thomas Grennes is professor of economics emeritus at N.C. State University.