Topic: Trade and Immigration

Fed Chairman Explains Benefits of Free Trade, Warns against Protectionism

Federal Reserve Board Chairman Ben Bernanke delivered an important speech Tuesday on the benefits of free trade to our economy and workers. Speaking to an audience in Butte, Montana, Bernanke explained why trade raises our standard of living and backed up his economic logic with up-to-date evidence.

He acknowledged that some workers and companies lose out, at least temporarily, from more vigorous global competition, but he warned that protectionism would be the worst possible policy response.

As the Fed chairman told his audience:

Restricting trade by imposing tariffs, quotas, or other barriers is exactly the wrong thing to do. Such solutions might temporarily slow job loss in affected industries, but the benefits would be outweighed, typically many times over, by the costs, which would include higher prices for consumers and increased costs (and thus reduced competitiveness) for U.S. firms. Indeed, studies of the effects of protectionist policies almost invariably find that the costs to the rest of society far exceed the benefits to the protected industry. In the long run, economic isolationism and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living standards for U.S. consumers.

Rather than closing U.S. markets, Bernanke wisely recommends “policies and programs aimed at easing the transition of displaced workers into new jobs and increasing the adaptability and skills of the labor force more generally.”

If you want to understand what free trade really means for Americans, I recommend the full text of his illuminating speech.

New Report Unwittingly Reveals Small Impact of China Trade on U.S. Jobs

Our friends and ideological rivals at the Economic Policy Institute in Washington are releasing a report this week that supposedly documents that trade with China has cost more than 2 million Americans their jobs. The report is illuminating, but in ways its author did not intend.

Here’s how EPI’s press release on the study describes its results:

The dramatic rise in the United States’ trade deficit with China from 1997 - 2006 has cost jobs in every region in the country.  In a new report, Costly Trade with China, to be issued May 2, 2007 by the Economic Policy Institute, economist Robert Scott reports the growth of the trade deficit with China in this period has displaced production that supported 2,166,000 U.S. jobs, with New England being the hardest hit region of the country. 

For reasons I’ve explained in detail before [.pdf], EPI’s methodology for calculating job losses from trade is fundamentally flawed. Its model ignores the dynamic effects of trade on U.S. economic growth, the beneficial effects of foreign investment, and the tremendous and healthy “churn” of the U.S. labor market.

Even if we accept EPI’s calculation of 2.2 million jobs lost, that is a drop in the bucket in an economy that employs almost 150 million people. Note that EPI’s number is spread over a decade, meaning that the actual number of jobs lost each year on average would be 216,600.

Compare that to the 320,000 or so Americans who line up EVERY WEEK to claim unemployment insurance after being displaced from their jobs–mostly because of technology, and domestic competition. In other words, trade with China, even by EPI’s exaggerated measure, accounts for about three business days’ worth of unemployment claims in a typical year.

More than compensating for the relatively small job displacement caused by trade with China are the huge benefits it delivers through lower prices at the store, lower interest rates, growing export opportunities, and greater peace and stability in East Asia.

For more on trade with China, check out our research at www.freetrade.org.

Mallaby, Penn & Teller on Immigration

Sebastian Mallaby’s Washington Post column today on immigration is simply outstanding. After providing evidence that hard-working people who have crossed the border without the state’s stamp of approval do not increase the rate of unemployment, cost the average taxpayer nothing, and at worst depress wages of native high school drop-outs by 9 percent, Mallaby makes the argument that many otherwise decent people seem unable to make: the well-being of immigrants counts, too:

[A]lthough the concern for high-school dropouts is welcome, it must be weighed against the aspirations of migrants. Is it right to push native workers’ pay up by 2 percent [a generous estimate of the gain from tighter restrictions on liberty of movement] if that means depriving poor Mexicans of a chance to triple their incomes?

Of course it isn’t, and given that the total economic effect of immigration on U.S. households is a wash, the big ramp-up in enforcement spending beloved by immigration hawks is an egregious waste of money. But no politician is going to say that.

Another excellent, and rather more entertaining, rejoinder to nativist hysteria is Penn and Teller’s new immigration episode of Bullsh*t, available here for your viewing pleasure.

Shed No Tears for U.S. Manufacturers

I’m going on BBC radio shortly to comment on the creation of a new lobbying group called the Alliance for American Manufacturing. Funded in part by the United Steelworkers Union, the group promises to agitate for trade restrictions against allegedly “unfair” imports from China.

Putting the “unfair trade” charge aside for a moment, there is no evidence that U.S. manufacturing as a whole is suffering from import competition, whether fair or unfair (whatever that means). Consider a few facts that you probably won’t find on the AAM’s slick new website:

U.S. manufacturing output is up 40 percent in the past decade by volume. American workers continue to produce more chemicals and pharmaceuticals, more semiconductors and sophisticated medical equipment, more aircraft and even auto parts than ever before.

After-tax profits of U.S. manufacturing companies topped $400 billion last year.

Imports from China have displaced relatively few Americans workers. Workers who have lost their jobs because of imports from China account for only about 1 percent of annual U.S. job displacement. The sectors where China has been most competitive tend to be in lower-value goods such as clothing, shoes and other labor-intensive products.

Manufacturing jobs have been declining, not because of falling production, but because of soaring productivity. We are producing record volumes of manufacturing output with fewer workers because remaining workers are so much more productive.

China represents the fastest growing major export market for U.S. manufacturing exporters.

To get more details and analysis on our trade relationship with China, check out my 2006 Cato Trade Briefing Paper, “Who’s Manipulating Whom?”

Send Your Wish-Lists to Senator Clinton

In a press release yesterday, presidential candidate Sen. Hilary Clinton (D, NY) spoke about her commitment to “rural economic development.” Her commitment was demonstrated by introducing a bill in March called the Rural Investments to Strengthen our Economy Act (RISE Act), which provides employer tax credits for “rural entrepreneurs and small business.”

“The RISE Act will increase jobs, wages and other financial incentives allowing individuals to decide where they live by their desire, not by limited opportunities,” said Senator Clinton (emphasis added).

Really? So if I want to live in, say, one of those townhouses in Georgetown, then the government will take money from other people and buy it for me? Awesome.

(For more discussion on rural America, please attend or view online our forum today on the latest trade policy analysis from Cato’s Center for Trade Policy Studies, “Freeing the Farm: A Farm Bill for All Americans”)

No Pearl(stein)s of Wisdom

Count the Washington Post’s chief business writer, Steven Pearlstein, among the disciples of “Dobbsonomics.” In his column today, Pearlstein writes:

There is a reason that, when it comes to trade and globalization, more Americans believe Lou Dobbs than Hank Paulson and Ben Bernanke — and it’s not because they’ve been bamboozled. The reason is that Americans perceive, correctly, that in recent years liberalized trade has not delivered as promised…(emphasis added)

Exactly what were those promises, Steven? Since 2001, the year of our last recession and the year China joined the WTO, U.S. GDP has increased 32 percent and about eight million net new jobs were created in the economy. Today’s unemployment rate stands at 4.4 percent. And don’t tell me that those 3 million people who lost manufacturing jobs at the beginning of the decade are flipping burgers or just stopped looking for work. The median salary in the services sector recently surpassed the median manufacturing salary.

A lot of the criticism of trade these days seems to be nothing more than expressions of self-loathing. As uneducated, unsuspecting, indebted sloths, Americans are living on borrowed time. Surely there will be hellish consequences to pay for our present profligacy.

Next time, let’s see the facts supporting the conclusion that U.S. trade policies have not delivered.

Stacked Deck

The Senate Agriculture Committee continues their hearings today with a focus on Title I – that’s the part of the farm bill that deals with farm subsidies. In the list of witnesses (available here), you will see significant representation from the main commodity groups (corn, soybeans, wheat, rice and a few others) and farmer groups (American Farm Bureau Federation, National Farmers Union). From what I can see, only two witnesses (out of the list of sixteen due to appear) could be expected to give a different take on farm programs: the North American Millers Association, as a user of commodities, might speak up about the damage commodity programs do to markets, and Bread for the World are rightly concerned about the effect of American farm subsidies on poor people around the world.

To be sure, farmers are affected by these programs and deserve a seat at the witness table. But where are the taxpayer groups? The food producer associations? Is the Committee even interested in the effects these programs have on the rest of us who pay for farm welfare? I guess that’s a rhetorical question.