Friday, March 07, 2008

Trade Isn't A Threat, It's Why We Are Prosperous

"Democratic candidates for national office will: 1) make negative comments about free-trade deals while campaigning in a state where hundreds of thousands of blue-collar manufacturing jobs have been lost and yet 2) be committed to free trade should they happen to win."

~Daniel Gross in his article "NAFTA Nonsense"

~Rod Hunter in today's WSJ article "The Democrats and Trade:"

On the campaign trail, both Hillary Clinton and Barack Obama are pandering to organized labor and other antitrade activists on the left.

It is tempting to dismiss this as empty posturing -- important for electioneering but likely to be forgotten after November. But words matter. If one of the Democrats wins the White House, he or she may find that the antitrade tirades delivered carelessly this year will, by next, have unleashed protectionist forces not easily controlled.

Mrs. Clinton is distancing herself from and even dismissing her husband's trade legacy, which includes enacting the North America Free Trade Agreement (Nafta), creating the World Trade Organization (WTO), and negotiating China's admission into it. She is now calling for a "time out" from any new trade pacts. Mr. Obama, unburdened by a record to defend, blames Nafta for shipping jobs abroad and "forcing parents to compete with teenagers for minimum wage jobs at Wal-Mart." He wants to renegotiate Nafta.

It is true that there is a lot of churning as jobs are destroyed, but even more are created as firms enter, exit or are resized in a dynamic economy. Back in 2004, Ben Bernanke, then a Federal Reserve governor, looked at Bureau of Labor Statistics data stretching back a decade and pointed out that about 15 million jobs were lost and 17 million created each year -- an annual net creation of nearly two million jobs. What's more, only about 2.5% of the jobs lost were a result of import competition. The vast majority of jobs lost were caused by changes in consumer tastes, domestic competition, and technology.

It is also true that U.S. manufacturing has been shedding jobs since the late 1970s, with workers increasingly moving into services (see chart above, click to enlarge). But we have seen this process before. In 1900, it took about 40% of the American workforce toiling on the farm to feed the country. Today, thanks to farm mechanization, agricultural chemistry and other innovations, a mere 2.5% of the workforce feeds the nation and exports about third of U.S. farm production.

Trade is not the threat Mrs. Clinton and Mr. Obama allege. It is a central reason why American workers are among the world's most productive and prosperous. An economy open to trade is also an economy free enough to thrive in a changing world.


At 3/08/2008 7:04 PM, Anonymous Anonymous said...

Prosperous? Tell us why the government has to lie to us and tell us that the unemployment rate went from 4.9% to 4.8% because people stopped looking for work and that somehow makes this a good economy?


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