Does Free Trade Kill Jobs?

By Michael R. Strain

Monday, December 10, 2018

Elizabeth Warren recently gave a major speech on global affairs, including a discussion of U.S. international economic policy. She’s not complimentary.

Giant corporations have made money hand over fist. But our trade and economic policies have not delivered the same kind of benefits for America’s middle class. In fact, U.S. trade policy has delivered one punch in the gut after another to workers and to the unions that fight for them.

For decades, the leaders of both parties preached the gospel that free trade was a rising tide that would lift all boats. Great rhetoric — except that the trade deals they negotiated mainly lifted the yachts — and threw millions of working Americans overboard to drown.

Senator Warren, a Massachusetts Democrat and likely 2020 presidential contender, continued: “Policymakers were willing to sacrifice American jobs — not their own, of course — in return for boosting sales at Walmart and gaining access to consumer markets around the world.”

Troublingly, the political right is moving towards a similar understanding of the economic effects of trade liberalization. Most prominent is President Trump, who has sounded very similar notes on trade. (Read paragraphs five through ten of this speech, for example.)  And some conservative writers and analysts are also questioning the benefits of trade to America’s workers.

Of course, global free trade reduces the prices for and increases the variety of consumer goods brought to market, increases the purchasing power of wages through those lower prices, and allows for the U.S. economy as a whole to be more efficient and productive. These are no small things.

But what about jobs? What is the relationship between trade and employment?

I discuss this in my latest Bloomberg column.

As a first pass, the right answer to the question is that trade doesn’t reduce the overall number of jobs in the economy. It doesn’t increase that number, either. It’s largely a wash.

Why? For one, monetary policy attempts to achieve full employment, regardless of the effect of trade on the labor market. So if trade puts a large number of people out of work, the Fed will presumably run the economy hot long enough to allow those workers to find new jobs.

And while trade increases imports — which can negatively affect workers who make similar goods here at home — it also increases exports, which pushes up the demand for workers in export-intensive firms and industries.     

That’s the theory, anyway. In my column, I highlight some empirical research that shows this view is basically correct. If anything, the evidence shows that free trade in recent decades has increased — not decreased — the overall demand for workers.

My column concludes:

But for a worker who loses his job due to trade, the macroeconomic picture hardly matters. The answer is not to erect walls around the U.S. Instead, public policy needs to do a much better job of helping workers manage the difficult adjustments that are required by a dynamic economy — whether those adjustments are driven by trade, or by anything else.

In her speech, Senator Warren does not have much to offer that worker. And it would be better if Democrats and Republicans both understood that erecting walls around the United States doesn’t offer any real help to American workers, as well.