Does free trade cost jobs?

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Answered by: Robert, An Expert in the Trade Category
Trade is a contentious topic that absorbs countless hours of debate by pundits, experts, politicians, steel workers, automakers, economists, immigrants, foreigners, and all manner of Americans. The slogans of the anti-trade groups are short, easy to understand, and emotional. Free trade costs jobs! This position is valid to an extent, however, trade is a concept that is far more complex. It is a disservice to anyone looking to become informed to treat trade so cavalierly.

Yes, trade will cost jobs. However those are jobs that were already doomed. Trade allows for the more efficient allocation of economic resources. More trade increases competition for those of us in the United States and abroad. Yes, it means that it will be easier for a Chinese steelmaker to penetrate the market or an Indian customer service company to get American clients. And this competition will cost American jobs.

However, this position is based on a false premise that no longer exists (assuming it ever did). The United States is a part of the global economy, gone are the days when we could sustain ourselves and ignore the world (and it is debatable whether those days ever existed). Whether we like it or not, the United States competes on a global scale and this competition will only intensify. This means that the U.S. cannot wall itself off and ignore economic trends. Outdated American industries such as: steel, cheap goods, textiles, and other industries were doomed the moment other countries began modernizing their economies. Americans took jobs from Europeans in the 19th century and China, India, Indonesia and Latin America are doing it us today. And one day, Africa will do it to all of them. The nature of economics is the nature of change.

Therefore, trade is not responsible for lost jobs because those jobs were already gone. Instead, trade is responsible for accelerating those changes to benefit the wider economy. Trade breaks down the barriers to competition between businesses and workers. This grows the economy and places pressure on American workers. For some, it will increase their purchasing power because cheaper goods and services mean your dollars can go further. Trade allows for big box grocers and retailers to exist. Wal-mart, for all of its flaws, is a stellar example of the power of trade. Millions of Americans have access to cheap clothing, furniture, and food due to trade. For others, it will lacerate their company and result in layoffs. This is the sad but inevitable truth of competition in the global economy.

As a thought experiment, let us assume that the reverse occurred and free trade was abandoned by the United States. The inevitable decline would still occur just more slowly. More people continue to work in that declining industry which means more people are dependent upon it. Stalwart companies are slowly driven out of the market by other global players that are unimpeded by trade barriers. This manifests with declining wages, inefficiency and rising prices. U.S. companies are faced with significantly higher expenses because they are trapped in a domestic market that is expensive and inefficient therefore they must raise prices to cover the rising costs. Additionally, American companies keep wages stagnant because workers are the only expenses that can be controlled. However, all of these measures do not forestall the inevitable which is that the U.S. economy is inefficient and due for a painful correction. Now, instead of endangering a single industry it now affects the entire economy. Finally, when all the dust has settled the industry still collapses however this time it drags everyone down.

This is the result of trying to oppose economic forces. The U.S. government can influence the economy but it cannot control it. No amount of laws will stop the global economy from forcing change on the U.S. The U.S. cannot stop these forces but it can control how they enter and influence the economy. The U.S. can forestall the pain of the realignment with job training programs, increased assistance for families affected by economic shifts, tax breaks to companies that train American workers, even one day, relocation funds to families moving to another country in pursuit of work. Moreover, this realignment will create more jobs for Americans. Now instead of millions of steel workers, the U.S. expands other industries in which it is a leading competitor such as: medicine, technology or services.

American workers will face increased competition from abroad, it is unavoidable. All the U.S. can do is to ensure that its government and people are prepared to thrive in the new environment.

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