International Trade Has Cost Americans Millions of Jobs. Investing in Communities Might Offset Those Losses

Yves here. On the one hand, it is useful to have an economist amplify the World Bank analysis that documented the magnitude of US job losses after China entered the World Trade Organization. It is also useful to have an economist debunk the “Let them eat training” recommendation to workers who suffered and offer an alternative.

On the other, the critique of training as a remedy is timid. Professor Batabyal merely notes that people in communities that have lost out due to more open trade don’t want to move even if they’ve gotten training that allows them to seek work elsewhere.

He doesn’t point out that not wanting to move is rational. First, most people have informal social safety nets where they live as well as emotional support.

Second, how is someone who lives in the boonies supposed to find work elsewhere? Most jobs are never advertised but are filled through contacts. Of the jobs listed, most employers greatly prefer someone who has done the same or similar work at a similar company. Someone with training and no experience will be way down the list.

Third, traveling to try to find work somewhere else costs money and per above, is likely not to work out. Better to hunker down in place.

By Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of Technology. Originally published at The Conversation

Some economists support policies that invest in communities and towns as the best way to offset job losses. Photo by Andrea Leopardi for Unsplash

Arguing against globalization is like arguing against the laws of gravity, said former United Nations Secretary General Kofi Annan. Globalization, the international trade in goods and services with minimal barriers between countries, may seem inevitable as the world’s economies become more interdependent.

Properly regulated, globalization can be a powerful force for social good. For wealthy nations, globalization can mean less expensive goods, additional spending and a higher standard of living. For those who live and work in poorer nations, globalization can lead to greater prosperity with the power toreduce child labor, increase literacy and enhance the economic and social standing of women.

But not everyone gains from globalization. An analysis of 120 countries between 1988 and 2018 and published by the World Bank illustrates who has lost. The U.S. trade deficit with China, for instance, has had an adverse effect on American workers, effectively eliminating 3.7 million jobs between 2001 and 2018. More than 75% of those job losses were in manufacturing, accounting for more than half of all U.S. manufacturing jobs lost or displaced during this period.

If globalization is inevitable, then what are the best strategies to help American workers get back into the workforce when their jobs have been eliminated?

Job Loss and the Working Class

The economist Branko Milanovic, using data from the World Bank, argues that the losers from globalization are working people in rich nations. Milanovic’s research demonstrates that a large portion of the lower middle class in the U.S. and Western Europe have seen little to no gain in income since 1988. At the same time, 200 million Chinese, 90 million Indians and nearly 30 million people in Indonesia, Brazil, Egypt and Mexico have profited from globalization.

Many American workers have been negatively impacted by liberalized trade with China, the so-called “China trade shock,” because goods that China exports to the U.S. have substituted for comparable American-made products. From an economic perspective, China successfully increased its share of world manufacturing exports from a little more than 2% in 1991 to 28% in 2018. By contrast, in 2001, U.S. trade began to increase with China when the latter joined the World Trade Organization, the international organization that determines the global rules of trade. Even though U.S. exports to China have increased over time, since the U.S. buys more from China than we sell to them, a large trade deficit has opened up. The growth of this deficit means that the U.S. is losing jobs in manufacturing and foregoing opportunities to add jobs in this sector because imports from China have skyrocketed, while exports have not increased as much.

The trade deficit has had different impacts on regions within the U.S. Some regions are devastated by layoffs and factory closings, while others are surviving but not growing the way they might if new factories were opening and existing plants were hiring more workers. This slowdown in manufacturing job generation is also contributing to stagnating wages and incomes of typical workers and widening economic inequality.

Retraining and Moving for Work

What are the solutions for the millions of American workers who have lost their jobs? Economists generally support “people-based” over “place-based” policies and investments. The rationale is that it’s more important to invest in workers rather than bolster a place where workers live. Economists would argue that directing public funds into regions doing poorly is akin to wasting money. The logical outcome of such policies is that towns that have lost their economic base are allowed to shrink while other economies take their place.

The Department of Labor’s Trade Adjustment Assistance for Workers program helps workers displaced by international trade with job training and relocation assistance, subsidized health insurance and extended unemployment benefits. Trade Adjustment Assistance is a “people-based” policy because it invests in workers. I believe that, relative to the magnitude of the job losses, Trade Adjustment Assistance provides too little relief. While there is little support among economists for place-based policies, recent evidence demonstrates that such policies may deserve another look.

Examples of place-based policies include enterprise zones where economic incentives are offered to firms to create jobs in economically challenged areas and policies that seek to promote economic development by investing in infrastructure, such as the Tennessee Valley Authority, which, since 1933, provided electrification to the rural South, promoting industrialization and enhancing the quality of life in that region.

Adapting to Joblessness

People-based policies are predicated on the assumption that if given the right incentives, people will leave economically strapped areas and move to flourishing regions. Yet researchshows that even in regions of the U.S. where deep manufacturing job losses have occurred, workers frequently did not move to new jobs. Those who lost their jobs adjusted, spent less money and stayed put, resulting in a further reduction of economic activity in regions that, in turn, became poorer.

Workers who can move to more promising locales, but choose not to, is a phenomenon not only in the U.S. but in Germany, Norway and Spain, even if economically depressed regions have a negative impact on those who live there. Men – particularly young, white men – in the U.S. are less likely to graduate from college, more likely to bear children out of wedlock and more likely to suffer from what the economists Anne Case and Angus Deaton have called “deaths of despair.” These deaths arise because of a deep sense of hopelessness stemming from unemployment, lack of resources and alcohol and drug dependency.

Strengthening a Place Called Home

If relatively low-skilled workers are unwilling to move, then should policies that favor people-based programs continue? Or is it better to make place-based investments, as the 2019 Nobel laureates Abhijit Banerjee and Esther Duflo suggest?

I believe that the U.S. should back policies that support people where they live and invest in those places when global trade, specifically liberalized trade, has taken a toll on American workers. Regional policymaking might ask what is needed so that those who are unemployed do not feel, as Nobel Prize-winning poet Gabriela Mistral writes, that “everyone left and we have remained on a path that goes on without us.”

Print Friendly, PDF & Email

36 comments

  1. Tom

    Ever heard of alter globalisation NC? Maybe look it up rather than constantly posting banal critiques with no alternatives.

    Reply
    1. juno mas

      So, Tom, tell me more about how this article, that specifically states that globalization does not work for every nation, is in conflict or ignores the concepts essential to alter globalization (that do not necessarily oppose the free market, but a subset of free-market practices characterized by certain business attitudes and political policies that they say often lead to violations of human rights. — Wikipedia.)

      Reply
    2. Massinissa

      I looked up that thing… It sounds like a non-solution solution. ‘Lets do Globalization but do it less neoliberally and do it more green’? Is this a joke? If this is the best ‘alternative’ on offer maybe its better to just critique actually existing globalization than pretend there can be a version that’s the same thing but slightly better. Globalization is ecologically unsustainable, and the idea that it can be done but ‘green’ is almost preposterous.

      Also, this Alter Globalization movement isnt even a new movement: Its been around for decades, at least twenty years. Seems like its been fairly toothless so far.

      Reply
  2. John Zelnicker

    Yves – The photo at the beginning of the post is extremely distorted vertically on my computer.

    I’m using Opera on a Win 10 Pro computer.

    Reply
          1. Jeremy Grimm

            It’s long and slow at times and a remarkable piece fantasy. As I recall it had something of a following at Good Reads.

            Reply
            1. ChrisPacific

              I have mixed feelings about it. It’s essentially a series of related character/setting portraits without much in the way of a plot, but they are very well done. I found it a bit unfocused compared to other books of his I’ve read, but it definitely has its appeal (I think I’ve read it twice now).

              It’s a polarizing book. People who like it tend to like it very much indeed, while others find it really doesn’t work for them at all.

              Reply
  3. Plague Species

    The writing is on the wall. We have reached the beginning of the end of growth. To minimize tragedy, we need to embrace contraction and manage it equitably. It will require an entirely new economic system and a new form of governance. Cuba is about the only country up to the task since they have been forced to do just that for the past sixty years (see Cuba: The Accidental Revolution). They’re in good shape to weather the contraction storm that’s coming whether we like it or not. America, China, Russia and Europe are toast and will be unable to adapt. They will all descend into bloody chaos.

    Reply
  4. Pelham

    Another big factor keeping many retrained workers from moving is housing. If they own a home, chances are they won’t be able to sell at anything other than a loss.

    Reply
  5. drumlin woodchuckles

    ” Arguing against globalization is like arguing against the laws of gravity, said former United Nations Secretary General Kofi Annan.”

    Really? He really said that? Well . . . . so what if he did. That doesn’t make it so.

    Globalization is not a discovered and explained Newtonian Law of Physics the way Gravity is. Globalization is an artificially engineered politiconomic arrangement designed to impoverish millions of de-jobbed ex-workers in order to transfer and concentrate their stolen wealth and opportunities laterally into more exploitable Slavery-Haven hell-hole shitholes in order to transfer the wealth-production up the ladder into a few rich hands.

    Globalization can be artificially de-engineered back out of existence just as simply as it was artificially engineered into existence to begin with. Notice that I said “simply”, not “easily”. It would take several decades to do and it would have to begin in certain countries which were willing to abrogate all the Free Trade Agreements they are currently in, and to reject and resign from all Free Trade Organizations they are currently members of, such as the World Trade Organization. Such countries would then have to exclude imports in certain sectors which those countries wished to restore and rebuild back into existence within their own borders. They would have to understand that the remaining Free Trade Globalization governments would orchestrate the kind of blockade against them which the US orchestrated against Cuba. They would have to be ready for the kind of Armed International Aggression against them which a terrified World Leadership waged against the nascent Bolshevik Republic in 1918-1921.

    Very few countries are big enough and strong enough to dare to even try to make the attempt. America for now is still one such country. Russia is another. Are there potentially others which could face the danger and face their fear and make the attempt? I don’t know.

    The individual countries which make up EUrope are too small individually to do any such thing, but if they all adopted the same philosophy and goal-set together, they together could form the kind of viable autarkizone which would enable them to withstand the siege of a vicious and mass-democidal International Free Trade Leadership.

    I wonder who paid Kofi Annan to say that arguing against Globalization is like arguing against the Laws of Gravity. I wonder how much they paid him to say it. I wonder how much money Annan has these days.

    Reply
    1. ChrisPacific

      I can think of one important respect in which arguing against globalization is unlike arguing against gravity. If you are in a job where you are at high risk of being killed by gravity (climbing instructor, for example, or high rise window washer or construction worker) then you can generally count on your employer or government putting enough safeguards in place to make very sure that it doesn’t happen.

      By contrast, if you are at high risk of being killed by globalization, it’s unlikely that you can expect any help at all from government or your employer, and in fact if it happens they’ll likely blame it on you for not being adaptable enough to avoid it.

      Reply
  6. Hopelb

    What if government subsidized industries that create long lasting, finely engineered, purposely low tech, ( no tin whiskers ruining circuit boards!) and easily fixable (by the consumer) goods using recycled inputs as much as possible?Everyone in the world would want them, particularly if they are easily powered by solar/wind/etc.

    Reply
    1. Jeremy Grimm

      What would stop the designs from crossing an ocean and returning at half-the-price, perhaps brought in by Internet order from Amazon and sourced directly by a foreign manufacturer?

      Reply
      1. drumlin woodchuckles

        What would stop that? Militant belligerent Protectionism. Hostile Abrogation of all Free Trade Agreements and Belligerent Withdrawal from all Free Trade Organizations.

        Restoration of our pre-Free Trade legal self permission to exclude every such item.

        Reply
        1. Amfortas the hippie

          Hear! Hear!
          (throws his beer)

          in the mean time, is it really too much to ask that we at least start trying to feed ourselves something besides industrial corn products?
          jigger the price the farmer…even the back yard kind…gets by creating money and giving it to him.
          everybody’s gotta eat.(https://www.goodreads.com/book/show/832744.Five_Acres_and_Independence)
          it’s silly to so consistently insist that the only way forward is to get more and more high tech.
          Most of the people i have ever known are simply not suited to such complexity…and that should be ok…because we need peanuts and wheat and tomatoes, and the only real reason that there aren’t millions of people farming in this country is because efficiency said so… we also need stuff for rednecks and simpletons and those who are confused and frightened by modernity to do with themselves, besides sit around watching wwe and getting angry.
          this rant derives from driving through one of our many ghost towns, where there used to be near-civilisation, until there wasn’t a reason for anybody to be here any more.(what price efficiency of scale?)
          There’s often an assumption made in articles like this…that people naturally want to “move up” and work in air conditioned comfort…that all the things that go into feeding people are somehow less-than.
          I’ve had a huge problem with that for most of my life.

          Reply
          1. Jeremy Grimm

            Sounds like you want to break-up the Agri-Business Cartels and make better use and take better care of soil and watersheds. I spent my work years fooling with high tech complexity and I am not sure I’m suited to farming and growing stuff, much as I wish I were. I have always regarded people with a way for growing stuff with awe. I can’t wrap my head around the complexities of things like growing peanuts, wheat, and other foods — although it looks like I better try. Actually I can’t muster the interest necessary to master the many details of growing stuff well.

            I believe in the old idea of a calling, and how a calling gives purpose to our lives. The US fixation on “jobs” — whatever Corporate wants — and the Corporate value attached to employee fungibility and disposability, completely undermines any possibility of a calling. People have different gifts and feel different callings. We are not fungible like cogs. We live lives devoid of purpose other than such purpose as we can attach to a job as a means to survive and feed our families, if we are lucky enough to have families. I suppose this is all a round about way of saying our Society has allowed Monetization of all to distort our values and what we value.

            Reply
            1. Amfortas the hippie

              yep.
              for all the talk of “freedom” we’ve been pelted with, there sure ain’t a lot of it to go around.
              wage slavery and being chained to a bullshit job because some corporate bean counter thought it was an elegant solution to the labor problem to import tomatoes from mexico.
              “dignity of work” they said….over and over and over again.
              but they didn’t mean it.
              Parity Pricing for agriculture has been a known thing for better than an hundred years.
              we can’t eat code.

              Reply
          2. Roxana

            Amfortas, you are 100% right! People generally don’t want to leave their homes and relatives. Young people go into the military in these forlorn areas, and then go back. The politicians have had no interest in the working class or farmers for a long time. I was back home, in W.Va. when Kerry was campaigning. They blocked off every road and the bridge across the Ohio so he could breeze through in his stretch limo, along with his retinue. It was a clear message–we’re too good to be bothered with you. I couldn’t help contrast that with JFK, who gave a speech at our community center, and LBJ who discovered poverty in W.Va.

            Reply
      2. Darius

        Revival of antitrust enforcement. Amazon is illegal according to the letter of the law. It should be broken up into at three separate entities.

        Reply
    2. Darius

      At the Granola Shotgun blog, Johnny San Phillipo wrote recently about cheap creep, what Lambert calls crapification. A product that used to be reliable but they replaced metal components with plastic to save a few pennies and now it’s crummy. In the past few years, I have become aware of toilet seats you can’t sit down on with the lid closed. The lid slides to one side. Towels not made in Turkey got crummy about 25 years ago.

      I think the competition that comes from breaking up monopolies and the control over a product by the manufacturer that would result from enforcing the Robinson Patman Act could provide a check to this trend and incentivize manufacturers to produce reliable products without unnecessary technology that just creates new ways for a product to malfunction and require replacement.

      Reply
  7. Jeremy Grimm

    Nice to have an economist notice that Globalization has not been kind to US Labor. But several little details of this post are disquieting. Did Globalization raise the standard of living “for those who live and work in poorer nations” or does the wholesale transfer of know-how, and physical and financial capital — which accompanied Globalization — better explain the higher standard of living? There is nothing about a transfer of know-how, and physical and financial capital that implicitly or explicitly requires or demands “free-trade” into the US markets. I believe the “free-trade” part of the deal was an expression of the greed of US Corporate giants for access to the huge markets in the heavily populated regions where Globalization flourished. It’s my impression this hasn’t been working out so well as hoped.

    What of the US trade deficit with China? I didn’t notice any breakdown on what the US sent to China versus what China sent to the US. I was under the impression a bulk of the US exports to China consisted of agricultural products and some raw materials. Our Government and Big Money appears to have succeeded in turning the 21st Century US into the kind of colonial economy Great Britain of George III desired as a market for manufactured goods and a source for agricultural produce and raw materials.

    It is nice to have an economist notice the large scale job loses resulting from Globalization but I suspect there’s been an undercount of the jobs lost. Not all the job losses were low skill manufacturing jobs. Manufacturing jobs support local businesses the little restaurants, shops, and services that used to line mainstreet. The large manufacturing concerns supported hundred even thousands of small and medium businesses producing parts and service to the large Corporate manufacturers. Many entrepreneurial opportunities were lost along with the jobs and innovations they created. Many highly skilled manufacturing jobs were lost with the low-skill jobs. And there’s been no mention of the highly skilled design, programming, and research jobs also lost to Globalization. What of the foreign professionals imported under H1-B programs to undermine the jobs more difficult to off-shore. Which leads me to ask just what jobs are left in the US that someone might retrain and move to fill? There aren’t a lot of options left and most are wide-open to competition from H1-B workers. I could offer no advice to my own children.

    This post also glides past a few problems with moving to new jobs in addition to the problems Yves detailed. A lot of people moved out of Detroit down to Dallas-Fort Worth when the auto-industry began deconstructing itself. After a decade or so the jobs they had moved for had moved or disappeared. When jobs move to an area — the job seekers moving in drive up the price for housing undercutting the value of their wages or salary. Jobs that require years of training and credentialing can disappear long before someone can finish their retraining.

    Dumping a lump sum of money on a locale won’t rebuild industry or sustain commerce. A guaranteed flow of Government money would be necessary. Without protection from domestic and foreign Cartels I can’t imagine what enterprise other than some form of service might make economic sense. I suppose everyone could build bridges, and campgrounds, and paint murals.

    Instead of retraining or pumping money into locales — why not dust off a little post US Revolution economics and protect some infant industries? Why not dismantle Globalization in favor of managed trade? The US needs to rebuild its productive capital, protect its markets, and lean on the recipients of the know-how, and physical and financial capital we shipped away to develop their domestic markets.

    Reply
    1. drumlin woodchuckles

      What did America send to China? Some of our most valuable and best-paying-jobs industries.

      What did China send to America? Lead paint toys, melamine milk, sulfur-dioxide-rich sheetrock, bogus fake drugs, bootleg pirate this-and-that, antibiotic-rich false-organic-labeled honey . . . cubic miles of the cheap plastic crap which helped to make Walmart famous, and etc. etc. etc.

      And lots of pretty good digital products too. Which could have been made here once upon a time at the price of costing more money to the consumer. With the offsetting benefit that the higher price would support higher wages to fellow American digital products workers who could then also buy Made-Or-Done-In-America goods and services too.

      30-50 years of economic shelter behind an Import Proof Wall of Militant and Belligerent Protection might allow America to regrow some semblance of a shadow of all that. Which would be more than what we have now.

      Reply
      1. Jeremy Grimm

        And don’t forget China isn’t the only place we sent and send our jobs and industry. Some also went to India, some to the Balkans and Eastern Europe, some to Japan, and some to Korea, some to Taiwan, some to Mexico and other destinations South. We also exported many of our Corporations who make very little taxable profits in the US, even lose money after depreciation of their domestic buildings. We did keep some of their names although some names were also exported.

        I agree we need some economic shelter to protect any attempts to regrow our capital but we need more than that. We need a Government supported Industrial policy and some grand challenges to inspire our efforts.

        Reply
          1. Jeremy Grimm

            OK — are you hinting that an Industrial policy should include reforms to the Medical and Legal Industries? If so, I agree.

            Reply
            1. Felix_47

              +1. Exhibit A Roundup
              Exhibit B Contingency Fees
              Exhibit C Fee for service medical
              Good luck changing any of it in a government dominated by Lawyers.

              Reply
  8. William Hunter Duncan

    I have argued to my liberal Dem friends and acquaintances since 2015 that because the Democratic party abandoned working people to the forces of globalization, illegal immigration and automation, they would/did lose to Trump.

    The general response has been, they proverbially stick their fingers in their ears and shout that working people are idiots who vote for republicans against their best interests; globalization creates jobs duh; no human are illegal and they only do the work Americans won’t do anyway; and automation, like the other two issues, is just evolution, so dummy, get training and move to the city; Oh, and they are just pissed at the world because they are racist bigot misogynists pigs.

    Republicans by contrast, most of them, have hated the working poor as long as I have been alive, so I don’t even bother to critique them. Though it seems of late, Republicans are more open to bringing back America’s productive capacity, though I assume they are thinking more like 19th century industrialists. Dems by contrast, I am only really hearing talk of doubling down on neoliberalism.

    Reply
    1. Altandmain

      I think that Social Liberalism in its current form has become a socially acceptable way to wage class warfare.

      Notably, many social liberals who support the Clinton, Biden, Obama, and other neoliberal types are a lot more conservative on issues such as the minimum wage.

      https://twitter.com/dilanpcook/status/1288388926344957952

      They are mostly shielded from the consequences (save for a few, such as working professionals in manufacturing companies).

      A lot of their problems come down to – they just don’t care about the working class, are openly contemptuous of them, and the working class isn’t buying it anymore.

      Reply
    2. neo-realist

      If the republicans were willing to spend on public education and to encourage government to develop public/private partnerships with corporations to do more training on the job like they did 40-50 years ago to fit more Americans into an productive capacity, I would have more respect for their positions. Most of them believe in the bootstrap philosophy, but don’t want any government inputs (the boots or the laces) to enable many to pull themselves up to get it for themselves.

      The dems are no better. They pay lip service to government help, then vote for austerity.

      Reply
  9. Altandmain

    On one hand, it’s great to see some economists finally concede the point, if only partially.

    On the other hand, the damage has been done. The neoliberals, their upper middle class friends, Liberal Democrats, alongside the more obvious plutocrats and Republicans have all worked hand in hand to destroy the manufacturing sector.

    For all intents and purposes, the class interests of Liberal Democrats is more aligned with the “shareholder and executive class” than the bottom 80 to 90% of Americans.

    When this is pointed out, many still refuse to believe this. Trump is a self inflicted problem and they need to stop looking down on the people negatively effected.

    There has been other damage. Part of the reason why the US has lost in part, its status as global superpower is the loss of technical know-how in manufacturing. That in turn spurns innovation. The rise of China, if you will, was a short term problem. So too is the widespread loss in IP.

    On the other, the critique of training as a remedy is timid. Professor Batabyal merely notes that people in communities that have lost out due to more open trade don’t want to move even if they’ve gotten training that allows them to seek work elsewhere.

    Yes – and there are even bigger barriers. For example, people are often told to “learn to code”. Coding is a very specialized skill not easily picked up and the demand is for very good coders.

    He doesn’t point out that not wanting to move is rational. First, most people have informal social safety nets where they live as well as emotional support.

    There are huge barriers to moving. Many cannot move due to financial reasons (cannot afford rents), health, etc. There is a certain “sense of belonging” with family, friends, etc where one stays.

    I think that the brutal reality is that most economists are not willing to come to terms with the full consequences. It would destroy their careers if it did.

    Reply
  10. Christopher Herbert

    I recommend one read “Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World” by William Mitchell and Thomas Fazi. Mitchell is, in my opinion, the godfather of Modern Monetary Theory (MMT) which is beginning to replace the noliberal dogma in high finance/investment circles.

    Reply
  11. attila the hun

    At the same time we’re exporting jobs to Asia and Latin America we’re importing labor through legal and illegal immigration. Small wonder American wages rise at an insignificant rate over time and the standard of living of the average American stagnates or declines. Hard to believe this happened by accident or is part of some immutable plan of nature. Both political parties are proponents of these strategies which leave the average worker as a victim. Why any rational person should have the slightest affinity for either party is unfathomable.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *