What are the side costs of trade with China?

by on September 26, 2011 at 6:00 pm in Economics | Permalink

There is a new study from David Autor, Gordon Hanson, and David Dorn:

The study rated every U.S. county for their manufacturers’ exposure to competition from China, and found that regions most exposed to China tended not only to lose more manufacturing jobs, but also to see overall employment decline. Areas with higher exposure also had larger increases in workers receiving unemployment insurance, food stamps and disability payments.

The authors calculate that the cost to the economy from the increased government payments amounts to one- to two-thirds of the gains from trade with China. In other words, a big portion of the ways trade with China has helped the U.S.—such as by providing inexpensive Chinese goods to consumers—has been wiped out. And that estimate doesn’t include any economic losses experienced by people who lost their jobs.

…Dartmouth College economist Douglas Irwin said the new research paints too bleak a picture. There are, he says, important benefits from trade that aren’t captured—because nobody has figured out how to measure them. For example, commodity-producing countries the U.S. exports to have been boosted by China’s growth, creating greater demand in those nations for U.S. goods. “But if we had more exports of (Caterpillar) heavy equipment to Australia, that’s not being measured” as a gain from trade with China, he says.

The original paper is here.

1 Alex Godofsky September 26, 2011 at 6:15 pm

Isn’t the idea that we can make up for the individual losses from trade through transfer payments an explicit argument in favor of free trade?

2 KLO September 26, 2011 at 7:08 pm

This strategy is only viable if you can measure and isolate the gains and the losses from trade. Since we cannot, there is no reason to believe that the winners will pay taxes to cover the transfer payments to the losers. Instead, the winners will insist that their bounty comes from the sweat of their own brows and that they should not be taxed to help out a bunch of idle losers. The government will “compromise” by funding a general welfare state, i.e. not one targeted at the losers from free trade, with debt until that is unsustainable. What happens after that is anyone’s guess.

3 Peter Schaeffer September 26, 2011 at 11:56 pm

KLO,

“The government will “compromise” by funding a general welfare state, i.e. not one targeted at the losers from free trade, with debt until that is unsustainable.”

Partially true. However, the real response I see is bubbles in non-tradeables. Non-tradeables include education, health care, and housing. How much of the post-2000 FIRE (Finance, Insurance, Real Estate) bubble was driven by the need (very real) to offset trade driven (China and non-China) economic weakness.

Note that the peak CA deficit was over 6% of GDP. It takes huge domestic bubbles to offset that magnitude of imported economic malaise. Of course, the post-2000 bubbles ended badly. Very badly.

How much of financial crisis can we blame on China? The U.S. – China trade deficit grew by $200 billion after 2000. Perhaps 1/3 – 1/2 of the 2008 crash was “Made in China”. That makes U.S. – China trade absurdly expensive.

4 Bill September 27, 2011 at 7:48 am

Good point. Particularly when we confine our purchases to real estate and not other services or non-treadeable goods we could have purchased instead, such as infrastructure and grade school education improvements. But, that would involve gov’mt.

5 Peter Schaeffer September 27, 2011 at 1:27 pm

Bill,

You are assuming that grade school improvements can be purchased with more money. See the See The Atlantic, January/February 2007, page 97. The total spending per pupil in public elementary and secondary high schools (expressed in constant 2004-2005 dollars to eliminate inflation as a factor) has nearly doubled from under $5,000 in 1970 to $8,000 in 1990, and nearly $10,000 in 2003. The number of teachers has increased from just over 2 million in 1970 to over 3 million in 2003. This has led to smaller classes and a decrease in the teacher-student ratio from about 22 to 1 in 1970 to 16 to 1 in 2003. The number of public-school teachers with at least a master’s degree has increased from 28% in 1971 to 57% in 2001.

Gains in student performance? Essentially zero.

As for physical infrastructure, we need to distinguish between maintenance and investment. Simply repairing potholes and painting bridges is maintenance. It is not “investment”.

investment can yield positive returns… However, America is not an investment friendly place. One example, the Tappan Zee bridge was built at a cost $80.8 million in the early 1950s. The replacement bridge is projected to cost $16 billion. Even allow for inflation, that’s a 25x increase in costs.

Those kinds of numbers don’t leave much opportunity for wealth creating infrastructure investment.

6 econobiker September 26, 2011 at 6:21 pm

That people had to have a study to figure this issue out is the real crime. When manufacturing jobs are exported then a whole bunch of support jobs lose out too. No office supply support, no janitorial for the factory, no mechanics to fix workers cars, no plumbers to service the factory worker’s homes, etc when the factory is shipped to China.

Just containers rolling back in from China filled with goods that should be priced 1/3 of what the price used to be but the corporations keep the the labor/cost savings as profits and either hold or maintain retail product prices at the 1st world prices.

7 Tim September 27, 2011 at 12:19 am

When the cost curve falls, it intersects marginal revenues at a lower price. This means the company makes greater profits by lowering prices. To pocket reduced costs as profits without passing anything off to consumers is not a valid way to maximize profits.

8 bastiat September 26, 2011 at 6:22 pm

The authors exclude many benefits – such as what growth occurred in other sectors due to people having to spend less on the goods manufactured in China.

9 steve September 26, 2011 at 6:36 pm

First is the fx war, followed by the trade war, last is the shooting war.

10 g September 26, 2011 at 6:42 pm

consume some of those goods…they are largely garbage. the primary entities that benefit from the arrangements commonly referred to as free trade are international corporations and financial uppercrust. they profit from wage and currency arbitrage. meanwhile, i get to consume crappy chinese trinkets and pay down the debt of my predecessors. the reason cosmopolitan types can’t understand the conservative underclass: they prefer comfortable and compromised over free yet dirt poor.

11 Cliff September 26, 2011 at 9:27 pm

They are not largely garbage. Are you even aware of everything you use that is made in China? You are calling it all crappy trinkets? The iPhone is a crappy trinket?

12 PK September 27, 2011 at 6:40 am

Well… I have a Mac Air that was, unfortunately, made in China. They must have changed the motherboard, since quality of everything made in China is simply crappy. I’d gladly pay premium price for a computer which would NOT be made in China, but Apple does not give me any choice. (And no, a Windows machine is not an option, either.)

My previous Mac used to have a crappy keyboard. I have yet to seen a quality Chinese product. They hardly manufacture anything other than garbage.

13 Peter Schaeffer September 27, 2011 at 1:29 pm

PK,

Chinese goods have quality problems (some, not all). Over time, they will improve. See Japan in the 1960s.

That’s the real problem. The adverse impact of China on America will only increase.

14 Careless September 27, 2011 at 11:11 pm

The iPhone is a crappy trinket?

Mine had two separate and individually crippling failures in the 12-15 month period of use. Yeah, that’s a crappy trinket.

15 doctorpat September 26, 2011 at 10:00 pm

If it’s all crappy trinkets, then why did everyone stop buying the American products?

a) American products weren’t any better, not without the benefit of nostalgia.
b) People LIKE crappy trinkets.
c) Everyone else is stupid, but you are smart.
d) The mind control rays from Walmart satellites

16 ecurb September 26, 2011 at 11:23 pm

Only an overly-wealthy elitist could call cheap goods from China “garbage”. People like you can’t understand how much these goods helped families like mine.
Give away enough money to bring yourself below the poverty line, then see how thankful you are for Chinese imports from Walmart.

17 Peter Schaeffer September 27, 2011 at 1:32 pm

ecurb,

Without Chinese imports, you might be able to get a better paying job. Does anyone actually believe that the price impact of Chinese imports is greater than the wage impact?

Of course, I could mention that Chinese development has raised the price of gasoline and food a lot. That hurts low-income consumers a lot more than the folks who shop at Nordstrum.

18 ezra abrams September 26, 2011 at 8:00 pm

Takes a PhD to figure out that a cheap TV is no substitute for a paycheck….
I would like Dr Tyler to tell us how many PhD economists, who are in FAVOR of free trade, have ever been terminated from a job, or laid off, or fired.
I’ll bet 10 dollars it is a low percentage.
to put it another way, as a scientist (PhD in molecular biology, currently working on DNA sequencing) I know that my own biases strongly affect my work. If I were to work in a field like trade with china, I’m not sure How I’d handle my own bias, and keep my own bias from affecting my research.
However, I do know that tenured professors of economics, particularly at the top, say, 10% of schools , are, statistically, winners in the American economic gain; they may be logs below W Buffett, but they are well, well above the median.
And in particular, Tenured Profs benefit from trade with china immensly; cheap TVs and toys of all sorts, and the impovershment of the working classes results in a steady supply of people desperate for work as cooks, or gardeners, or house painters, and willing to work at a very modest wage.

Now I don’t think that most professors actually think about this openly, but one has to wonder how they deal with the bias.

You know the old joke, men could get pregnant, abortion would be a sacrament ? Economist had to compete with chinese grad students, there would be deep theoretical reasons why free trade is a bad idea….

19 dennis September 26, 2011 at 8:47 pm

lets not forget the steady flow of undergraduate and graduate students loading up on debt. Of course to most tenured professors such people are mere inconveniences 4 hours a week in between the really important job of writing and re-writing the same article and posting it to various journals.

20 Andrew' September 26, 2011 at 8:54 pm

This is not really about free trade. This is about what happens when free trade and a billion people are repressed until all of a sudden they aren’t.

21 Beyond Chimerica September 26, 2011 at 9:11 pm

Exactly. Globalization has been different.

In the era of post-war globalization the number of workers added was relatively small and mostly comprised of East Asian nations taking up their part in the international division of labour. Naturally only those with enough productive capacity and capital behind them could actually compete with Western labourers. It is not enough to be cheap labour, there needs to a whole system consisting of rules and regulations, logistics, market access etc.

In contrast with the addition of China into the global market competitive pressures increased manifold, as one point three billion Chinese workers joined the global workforce. It was one thing to accommodate the smaller tiger economies, but China’s sheer size causes it to have a huge effect by its mere presence in the global economy. Today’s means of mass communication and

sophisticated logistic networks mean that global production chains can move closer to price-competitive areas. Of course, companies take advantage of this. A more sophisticated argument is that at the time of a rising East Asia the United States and Western Europe initially had little to fear due to their competitive advantage in advanced industries. The Asians could easily be left to fill the gap in providing cheap goods for as long as Westerners were dominating vital and advanced industries. Now that Asian nations have developed and e.g. Japanese companies displaced their American peers in technologically-advanced industries there is not enough of a manufacturing core left for the United States to guarantee high living standards for its 300 million, and steadily rising, citizens.

In today’s world the competition for jobs has increased at a scope previously unseen in world history which makes comparisons and policy debates about the impact of previous eras of globalization and free trade futile. [b]With labour doubling in size and without a corresponding doubling in capital per worker, capital becomes relatively scarce and hence return on capital increases. Labour income suffers from this development also through a loss in productivity as productivity per workers goes down (less capital per worker).[/b] Benefits accrue to those with skills that are in sufficient demand, are non-transferrable and relatively scarce. Income inequality between countries has fallen but income inequality within countries has risen. Global labour arbitrage acts as a drag on job creation in high-wage economies. 65% of the tripling in Chinese exports from the period between 1994 and 2003 is down to outsourcing by Chinese subsidiaries of multinational corporations and joint ventures.

Modern technology has even made the transfer of service sector occupations easier. Globalization has resulted in a period of mass prosperity and led hundreds of millions of people out of poverty which is why free trade and liberalization have been a force of good. Yet there are downsides, as many workers previously shielded from competition lose their jobs or see their incomes stagnate.

22 Sbard September 27, 2011 at 2:41 am

The US is still the largest manufacturer in the world. It’s just that a lot of the stuff we make doesn’t require many people to do it (chemicals, semiconductors, etc). Running a 100,000,000 gal/yr ethanol plant only takes about 6 people per shift where a steel mill in the fifties could employ most of the adult men in a decent sized city..

23 Jake September 26, 2011 at 10:46 pm

The Chinese are ‘suddenly’ not repressed? When did that happen, last night? There are still a billion repressed there.

24 Andrew' September 27, 2011 at 6:37 am

Politically I understand, economically less. If they were still just as economically repressed we’d be chatting about a different problem.

25 Alan September 26, 2011 at 10:32 pm

Globalization is working. It is raising the standard of living of poor people in China, Mexico, India etc. etc. and lowering or stagnating the standard of living of most people in the USA.

As for competition amongst economists (gasp! say it doesn’t happen!), the only libertarian academic economist I have ever known well enough to converse with personally told me that he only did the bare minimum he could get away with when supervising his graduate students because it was irrational to train future competitors for his job.

26 TB September 27, 2011 at 12:40 am

Ezra Abrams said: “I would like Dr Tyler to tell us how many PhD economists, who are in FAVOR of free trade, have ever been terminated from a job, or laid off, or fired.”

Considering the large number of econ professors I had who were foreign immigrants, I’d guess its a lot. Maybe not for terminations, but they still are competing for jobs.

27 dennis September 27, 2011 at 6:56 am

the reason for that is mathematics. Americans are allergic. But still plenty of ‘hard’ working tenured professors in political science, sociology and other blessed refuges of the genteel upper middle class guilds.

28 Claudia Sahm September 27, 2011 at 8:23 am

Dennis, beg to differ about math allergies. Mathbabe is my favorite blog (psst. don’t tell the folks at MR): http://mathbabe.org/about/ Cathy is an American woman (not the only one) determined to show girls (and boys) can (and should) do math. On a tip from her blog, I will buy the following t-shirt: http://datashirts.spreadshirt.com/my-what-big-data-you-have-A7968215/customize/color/2 Math is fun as is economics…who needs genteel?

29 Peter Schaeffer September 27, 2011 at 1:33 pm

ezra abrams

“Takes a PhD to figure out that a cheap TV is no substitute for a paycheck…”

The answer would appear to be yes.

30 A Berman September 26, 2011 at 8:26 pm

The whole argument for comparative advantage seems to falter when one side has motivations other than simple profit maximization, no?

31 Beyond Chimerica September 26, 2011 at 8:36 pm

The compensation hypothesis holds that public support for free trade can be maintained if a compensation mechanism exists that shifts some of the benefits of free trade towards those that initially lose out. Free trade benefits a country as a whole in most cases as the production possibilities frontier moves outwards but income distribution will be shaped by the relative scarcities of capital and labour to name just two factors. The benefits of free trade are mainly in lower prices which benefit society as a whole, whereas the negatives hit partial sectors of the economy. Yet these partial sectors can make use of the political process and forestall free trade causing society as a whole to lose out. We all benefit from lower prices for electronic appliances but workers at factories that have to shut down due to competition from places like Indonesia will hardly rejoice in that fact. Whilst saving a few hundred dollars on a new TV purchase their paycheck providing them with stable income every month disappears. They will understandably clamour for some way of compensation unless they find a new job quickly. Failing that, they will demand for their sector to be protected from cheap imports.
Politicians can overcome this issue by establishing means to compensate the losers and diminish their power to hold off an expansion in free trade. Studies have shown that higher unemployment benefits are linked with a higher free-trade inclination. The same applies as well to higher government spending.

It was during and after the Great Depression in the United States that the fundamental role of the state as a stabilizer of the economic system was proposed and widely accepted. Even closed economic systems are thought not be inherently stable and thus require a strong state to deal with downturns. The welfare state is but one expression of this fundamental belief which also results in many of the regulatory functions the state takes on, such as supervision of the financial system. Yet Globalization undermines the capacity of the state to act boldly and causes more uncertainty and negative effects in partial sectors of the economy even though it acts as a force for good when looking at the whole picture. As weak industries fall by the wayside of liberalized trade and workers become unemployed, the state sees its function in buffering their loss and offers help via its welfare system. However it is precisely this welfare system that causes the structural shift that is needed not to occur.

Now add in cuts in welfare spending due to austerity and you can see why I am open to the suggestion of an upcoming trade-war.

32 Peter Schaeffer September 27, 2011 at 1:35 pm

“Free trade benefits a country as a whole in most cases as the production possibilities frontier moves outwards but income distribution will be shaped by the relative scarcities of capital and labour to name just two factors.”

Wow. You need to read a bit beyond introductory textbooks. For a start try “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”. Samuelson shows that in some cases trade can be net wealth (really income) reducing. It’s a well known paper.

However, there is a deeper point. The Ricardian model assumes full-employment equilibrium… Anyone want to try that one on of late? Ricardo assumes that government won’t respond to trade losses in ways that make trade a net negative. In fact, they do.

Note that the Samuelson paper shows that trade can be wealth reducing even a full-employment equilibrium. Remove that assumption and results get much worse.

33 Beyond Chimerica September 27, 2011 at 8:06 pm

Most economists would agree that free-trade brings benefits to each side in almost all cases, I don’t see how you citing one paper makes the consensus any less stringent. It’s hard to find an area outside free-trade where economists agree more. If you are making the case based on one paper which shows that in some cases net-wealth goes down then obviously you’ll be hostile to the idea of trade.

You can have unemployment without free-trade, or are you making a case that the unemployment situation would be much better if the US closed its ports to Chinese goods? Spain’s youth unemployment rate is around 40%, are you going to blame Germany or the Eurozone in full for it?

34 Peter Schaeffer September 28, 2011 at 10:08 am

“Most economists would agree that free-trade brings benefits to each side in almost all cases,”

Actually no. They would agree that free-trade is mutually beneficial assuming full employment is maintained. That is clearly no longer the case. It is well understood that trade-restriction is wealth increasing if you don’t have full employment. In other words, a towel made by an otherwise unemployed worker is *always* cheaper than an imported towel.

“You can have unemployment without free-trade, or are you making a case that the unemployment situation would be much better if the US closed its ports to Chinese goods?”

The standard estimate is that U.S. unemployment would be 2% lower without the U.S. – China trade deficit.

“Spain’s youth unemployment rate is around 40%, are you going to blame Germany or the Eurozone in full for it?”

Not all of it of course. However, Spain’s fixed currency (like the RMB / $ linkage) is responsible for a substantial fraction of that 40%.

35 Peter Schaeffer September 28, 2011 at 10:10 am

Note that even with full employment, the entrant of country such as China can clearly make Americans poorer. As China produces more sophisticated goods, we lose global comparative advantage and global food and fuel prices rise. That means lower wages and higher prices for American workers. That’s a lose – lose proposition.

36 8 September 26, 2011 at 8:42 pm

The whole argument for comparative advantage falters when there is free movement of capital and probably also when the other country is rapidly developing to overcome the areas of disadvantage. Also, when other countries knowingly exploit every advantage to gain at your expense. Globalization is great for the globe trotting elite, but it sucks for the average voter in Western and developed countries, who can look forward to wage stagnation and falling standards of living for their children.

37 Cliff September 26, 2011 at 9:30 pm

If you think the other country can “rapidly develop to overcome the areas of [comparative] disadvantage” then you have NO idea what comparative advantage is. Comparative advantage will always exist even if one “country” has a huge advantage over the other in every area.

38 Peter Schaeffer September 27, 2011 at 1:36 pm

Cliff,

You need to read a bit beyond introductory textbooks. For a start try “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”. Samuelson shows that in some cases trade can be net wealth (really income) reducing. It’s a well known paper.

However, there is a deeper point. The Ricardian model assumes full-employment equilibrium… Anyone want to try that one on of late? Ricardo assumes that government won’t respond to trade losses in ways that make trade a net negative. In fact, they do.

Note that the Samuelson paper shows that trade can be wealth reducing even a full-employment equilibrium. Remove that assumption and results get much worse.

39 Tom September 26, 2011 at 8:54 pm

The simplest argument for support of free trade is that it’s none of your business who I buy my goods from.

40 Peter Schaeffer September 26, 2011 at 11:59 pm

“The simplest argument for support of free trade is that it’s none of your business who I buy my goods from.”

The founders (i.e. the Constitution) didn’t see it that way The first significant law ever passed by the U.S. Congress was a tariff act. It was passed on July 4th, 1789.

41 dennis September 27, 2011 at 6:57 am

thats all well and good dear chap, but pray tell what niche in the economic system are you filling that you cannot be replaced by either a Chinese factory worker or an Indian tech guy?

42 tom September 27, 2011 at 9:47 am

I do compete with the Indians, and seem to be keeping my head above water. Does not mean I want to be able to hold someone hostage that they buy my services from me. I just know that if someone has that power, it’ll more likely be used against me than for.

43 Paul September 26, 2011 at 9:25 pm

The most important omission of this paper is that it doesn’t mention the welfare gains in China, where people start out at a much lower level of welfare. On the global level, US-China trade still looks pretty good.

44 delirious September 26, 2011 at 10:14 pm

I pledge allegiance to … the republic, for which it stands … one nation, under God, indivisible, cough

45 Jan September 26, 2011 at 10:55 pm

The washing machine from China isn’t 1/3 the price of the one stamped ‘Made in USA’. And the laid off U.S. factory worker doesn’t get to keep his job at 1/3 salary. Did we increase the taxes on the corporation profiting from this system by the same amount as the domestic “transfers of value” have increased? Someone has to pay for the welfare state since we are discovering that it will take at least a generation for workforce skills to realign with the those needed in a shiny, new free tradeified USA?

46 epobirs September 27, 2011 at 9:48 pm

That assumes there is something for those workers to shift into. A guy who was good at installing wire harnesses in disk drive cabinets (I did that for a few weeks at a Burroughs factory in the early 80s and discovered this sort of work would make me insane thanks to an intense ADD tendency) could do similar work on some other product but what if there is simply nothing like that in the country anymore? Vast numbers of people are never going to become ‘knowledge workers.’ Maybe a few former wrench turners took up web page design but that is never going to happen for most of the blue collar core of the manufacturing sector.

Part of the problem is that we’re victims of our own success. The list of toys and creature comforts we’ve become accustomed to changed rapidly in just a few generations. Imagine trying to explain your monthly budget to your grandparents when they were your age or even your parents. For me that would be explaining broadband and cell phone bills to my folks in 1977. They’d understand the cable bill but it might be hard to clarify why those other two merited a significant monthly expenditure for a lower middle class worker.

We priced ourselves out of the market. Then those who picked up the slack did the same and saw jobs head out from their country, until finally the quest for cheap labor has made it acceptable to do business with totalitarian governments. Where it goes from there is a mystery at this point.

47 kebko September 27, 2011 at 12:59 am

Paging Dr. Boudreaux. This comment thread needs you.

48 tom September 27, 2011 at 9:48 am

Amen

49 save_the_rustbelt September 27, 2011 at 10:01 am

I will listen to Don as soon as he gives up tenure and gives his job to a cheaper Chinese or Indian professor.

50 Veridical Driver September 27, 2011 at 1:50 am

The hidden assumption is that U.S. jobs are being “outsourced” to China, and those jobs would stay in the U.S. if it wasn’t for “free trade”.

The flaw is that a lot of low-profit manufacturing has essentially been legislated out of existence… There are certain things where the cost of regulation compliance, labor, etc., simply makes it unprofitable to manufacture with or without trade. Certain industries have essentially been banned in the U.S., and those products would disappear if it wasn’t for trade with China.

Also, people are assuming that if certain industries remained in the U.S., they would be employing the same number of people as the labor intensive manufacturing processes in China. I doubt many people reading this blog have actually visited many U.S. based factories, but if they had they would know that modern factories in the U.S. are ghost towns. When manufacturing is sent to China, they might have giant rooms filled with people, but U.S. manufacturing is highly automated. High labor costs creates a huge incentive for automation. Legacy factories might be labor intensive, but new factories will have almost no one running them.

Manufacturing is simply not going to be a major source of employment, trade with China or not.

51 Andrew' September 27, 2011 at 6:55 am

ZMP employers.

52 Lyn September 27, 2011 at 7:07 am

I, too, don’t see the benefit of cheap, disposable home electronics or appliances. Much of what is for sale is made in China and is crap. I go out of my way to buy things made elsewhere. And I am not an elitist.

If this trade imbalance were with Japan like it used to be or if it were with Taiwan or Singapore I wouldn’t feel so bad. Those countries make quality products. China for the most part does not. I worry about things like vitamins and fruit juice that are made in China. Won’t every buy prescription drugs, eye drops, nose spray or cosmetics or anything else that may eventually be made over there if I can possibly avoid it.

Finally, I don’t care to do my part to help raise the standard of living for Chinese people. I owe them nothing and unless you have fathered a Chinese person then you don’t owe them either.

53 tom September 27, 2011 at 9:51 am

All you say is/may be true. You are not forced to buy Chinese (or anywhere else), and I don’t want to be forced not to.

54 Dan September 27, 2011 at 9:52 am

Guess what – I don’t owe anything to US manufacturing workers either.

55 save_the_rustbelt September 27, 2011 at 10:00 am

True enough, but unless you live by yourself on an island the fate of others has some impact on your well being.

56 Dan September 27, 2011 at 10:04 am

Why should 1,000,000 manufacturing workers matter more to me than 50,000,000 Chinese workers? (I’m making those numbers up)

57 KLO September 27, 2011 at 11:58 am

You shouldn’t. I just wish politicians and economists would be more honest when pitching the benefits of free trade. Why don’t they tell us that for every 1 American put out of work as a consequence of free trade policies, 50 Chinese move into the middle class? Why don’t they tell us that wages will definitely fall, but they will offset (for many or most?) by a reduction in the price of manufactured goods? Why do they pretend that free trade is a soothing elixir that would work magic were people simply more relaxed about living in a cardboard box?

58 Finch September 27, 2011 at 10:09 am

Though presumably when you’re in the position of designing US law and policy you should care a great deal about the effect on Americans and very little about the effect on other people. Other people are only important to you insofar as they are important in the aesthetic preferences of Americans – the other people don’t pay you or decide if you are hired or fired.

59 save_the_rustbelt September 27, 2011 at 9:59 am

Gee, we figured this out a long time ago, without the PhD or the research.

60 David O September 27, 2011 at 10:58 am

Epic fail?

“The authors calculate that the cost to the economy from the increased government payments amounts to one- to two-thirds of the gains from trade”

This treats $100 in government payments as a $100 deadweight loss. In other words, if the government gives an unemployed person $100, the unemployed person gets practically no benefit. All but the most Randian of economists would think otherwise.

I’m surprised that – skimming the comments – no one seems to have got this.

61 David O September 27, 2011 at 11:05 am

Never mind, they apparently measured the deadweight loss of government benefits, not counting them as 100% deadweight loss. Nonetheless, perhaps this should be regarded as more an indictment of the American welfare system than China’s industrialization.

62 DHA September 27, 2011 at 1:33 pm

It’s purely the deadweight loss of taxation to fund the transfers. The transfers themselves don’t count as DWLs.

63 ron September 27, 2011 at 1:09 pm

The historical solution for a balanced trade with a manufacturing power is raw resources, coal, metals, oil, food, cotton, etc. The United States has all but legislated itself out of the resource extraction business with the exception of food (working on that, for example dust from farming will soon be regulated). Those countries that haven’t done so, Canada, Australia, Brazil are doing a brisk trade in resources to China.

64 Mr. Econotarian September 29, 2011 at 1:55 pm

My industry (entertainment) has almost no competition from China, but we sell a great deal of entertainment to China (despite the piracy).

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