Given the benefits of trade, negative views worrisome

Raymond Keating
Raymond Keating

Few economists doubt the benefits of expanding international trade. Since the days of classical economists like Adam Smith and David Ricardo in the late 18th and early 19th centuries, the benefits of trade have been voiced quite clearly among economists, with only the most rare exceptions.

To broadly sum up, eliminating or reducing such international trade barriers as tariffs and quotas lowers costs, opens up markets and opportunities, enhances incentives for production, boosts competition, improves quality, reduces consumer costs and expands choices. That is, expanded trade allows for a more efficient allocation of resources; increased opportunities for entrepreneurs, businesses and workers; and more choices and lower prices for consumers.

As for the role of trade in United States economic growth, consider that growth in U.S. real exports accounted for 30 percent of U.S. real GDP growth from 2001 to 2013. Real annual export growth averaged twice the rate of overall economic growth. As for total trade — that is, exports plus imports — it equaled 50 percent of economic growth over the same period.

At the same time, it must be noted that trade-related jobs in the U.S. pay more than the average wage. Also, it’s crucial to understand that, in general, workers gain in income when their productivity is enhanced, and U.S. workers stand out as among the most productive in the world.

So, why the negative views about trade?

According to the results of a survey released by the Pew Research Center (“Faith and Skepticism about Trade, Foreign Investment”), misconceptions, skepticism and fears over trade and foreign investment among Americans is rather stunning, especially when compared to views among others around the world.

Consider that views are mixed on trade and investment across the globe. The following results are medians across 44 nations: 81 percent agree trade is good, 74 percent agree foreign companies building factories in our country is good,

54 percent say trade creates jobs, 45 percent agree trade raises wages, 45 percent say that foreign companies buying domestic companies is good and 26 percent agree trade decreases prices.

But let’s focus in on the U.S.:

On growing trade and business ties with other countries, the U.S. came in at 68 percent of Americans saying good and 28 percent bad.

On foreign companies building factories in the U.S., 75 percent said that was good, and 23 percent said bad.

On trade and jobs, a mere 20 percent said trade creates jobs, 50 percent said trade generates job losses and 25 percent said there was no difference.

On trade and wages, only 17 percent said wages increase due to trade, 45 percent said wages decrease and 32 percent said trade doesn’t make a difference.

On foreign companies buying U.S. firms, 28 percent said that was good, and 67 percent said bad.

On trade and prices, 32 percent said trade increases prices, 35 percent said it decreased prices and 28 percent said there was no difference.

In all cases but one (foreign companies building factories within one’s nation), Americans were behind the curve, often substantially behind, the rest of the world in terms of understanding how trade works and the benefits from trade. And the rest of the world was far from clear on such matters.

Given the facts, Americans should understand that trade is positive; foreign companies investing in the U.S. and even buying American firms is positive; and that expanded trade’s impact on jobs, wages and prices are all positives.

Why the disconnect among Americans? One can only speculate, but it seems clear to me that three factors are at work:

Poor or very little education about economics.

Americans buy into political arguments on trade matters that ignore sound economics.

Fear — that is, the combination of the first two reasons — stokes concerns people have about their livelihoods.

In the end, expanding international trade means expanded opportunities for Americans. That message must be taught and learned. If not, the costs will be significant.