The concept that cheap imports result in job losses should be a no-brainer, but it is still greeted with considerable resistance in some circles.
Let’s be clear on a few points: while open trade in theory creates benefits to all parties, the system we have isn’t open trade, but managed trade. Most other countries negotiate trade treaties with an eye to achieving a trade surplus and protecting their workers; our approach is to favor the interest of our corporations, wherever they choose to produce their goods. William Greider made this point in a New York Times op-ed, “America’s Truth Deficit“:
The United States’…weakening position in the global trading system is obvious and ominous, yet leaders in politics, business, finance and the news media are not willing to discuss candidly what is happening and why. Instead, they recycle the usual bromides about the benefits of free trade and assurances that everything will work out for the best.
Much like Soviet leaders, the American establishment is enthralled by utopian convictions — the market orthodoxy of free trade globalization….
An authentic debate might start by asking heretical questions: Why is the United States one of the few advanced economies that suffers from perennial trade deficits? Why do new trade agreements, despite official promises, always leave the United States with a deeper deficit hole, with another wave of jobs moving overseas? How do the authorities explain the 30-year stagnation of working-class wages that is peculiar to America? Are we supposed to believe that everyone else is simply more competitive or slyly breaking the rules? In the last three decades, American policymakers have succeeded in closing the trade gap with only one event — a recession….
American political debate is enveloped by the ideology of free trade, but ”free trade” does not actually describe the global economic system. A more accurate description would be ”managed trade” — a dense web of bargaining and deal-making among governments and multinational corporations, all with self-interested objectives that the marketplace doesn’t determine or deliver. Every sovereign nation, the United States included, uses its vast arsenal of policies to pursue its national interest.
But on the crucial question of how policy makers define ”national interest,” Washington stands alone. Western Europe, whatever its problems, manages economic policy to maintain modest trade surpluses. Japan manages to insure far larger surpluses in recessions (its export income subsidizes inefficient domestic employers). China strives to acquire a larger, more advanced industrial base at the expense of worker incomes and bank profits. Germany and Japan, despite vast differences, both manage to keep advanced manufacturing sectors anchored at home and to defend domestic wage levels and social guarantees. When they do disperse production and jobs overseas, as they must, they do so strategically.
By contrast, Washington defines ”national interest” primarily in terms of advancing the global reach of our multinational enterprises. Elites are persuaded by the reigning orthodoxy that subsidiary domestic interests will ultimately benefit too.
Greider’s views are gaining increasing acceptance. Princeton economist Alan Blinder, once a die-hard free trade suporter, has come to the conclusion that the downside of free trade is likely greater than previously estimated. Harvard’s Dani Rodrik has looked at the analyses that seek to quantify the gains from open trade and has declared the estimates to be “grossly inflated.” In addition, even economists who are staunch supporters of free trade are increasingly willing to admit it creates losers and winners (before the belief was that a rising tide would lift all boats). It’s becoming respectable to advocate training and other subsidies to workers who lose jobs due to trade-induced industry restructuring (one of many examples: Timothy Geithner, President of the New York Fed).
So this short article by Robert Scott, “Wal-Mart’s reliance on Chinese imports costs U.S. jobs,” gives a little more dimension to the heretofore underreported costs of our current trade regime. Only when we understand both sides of the equation, costs and benefits, can we make sound policy decisions.
China’s entry into the World Trade Organization was supposed to improve the U.S. trade deficit with China and create good jobs in the United States. But those promises have gone unfulfilled: the total U.S. trade deficit with China reached $235 billion in 2006. Between 2001 and 2006, this growing deficit eliminated 1.8 million U.S. jobs (Scott 2007). The world’s biggest retailer, U.S.-based Wal-Mart was responsible for $27 billion in U.S. imports from China in 2006 and 11% of the growth of the total U.S. trade deficit with China between 2001 and 2006. Wal-Mart’s trade deficit with China alone eliminated nearly 200,000 U.S. jobs in this period
The manufacturing sector and its workers were hardest hit by the growth of Wal-Mart’s imports. Wal-Mart’s increased trade deficit with China eliminated 133,000 manufacturing jobs, 68% of all jobs lost. Overall, the Wal-Mart trade deficit displaced and 308,100 jobs in 2006. On average, 77 U.S. jobs were eliminated for each one of Wal-Mart’s 4,022 U.S. stores in 2006. (See The Wal-Mart Effect for more details.)
Wal-Mart’s huge reliance on Chinese imports illustrates that many powerful economic actors in the United States benefit from China’s policy of maintaining an undervalued yuan, its abuse of labor rights, and other fair-trade norms. Wal-Mart’s benefit, however, is not the country’s gain, as these policies have contributed directly to the ever-growing trade deficit that imperils future economic growth.