My first real job as a young economist was in 1992 when I went to work for the Economic Policy Institute (EPI), a progressive US think-tank. To my surprise, the place was buzzing with anxious talk about something called the North American Free Trade Agreement.
Why the surprise? Because I, fresh from graduate school, was taught that open, international trade is virtually all upside, allowing both trading partners to be better off than they would otherwise. I’d certainly never thought to crack open an actual trade agreement. Those days are gone. Especially in the age of President Donald Trump, trade policy is front-page news. It gets its own segment in presidential debates.
But just because the issue is elevated does not mean it is better understood. To the extent that we think about it at all, most of us probably appreciate trade’s cost-side benefits through increasing the supply of goods and services, while harbouring a vague sense that there’s a downside to globalisation that policymakers have long ignored, one associated with the rise of insular populism, anti-immigration and the fractious politics of Trump and Brexit.
Enter Fred Hochberg’s timely, engaging book Trade is Not a Four-Letter Word. Hochberg, a former head of the Export-Import Bank of the United States, is here to remind us of trade’s pervasive benefits. By his own admission, he is “not really neutral when it comes to this particular subject”. He is a cheerleader for globalisation but, unlike many of that ilk, he recognises trade’s downsides and warns his fellow advocates that if they fail to adapt a more balanced take on the issue, we’ll end up with less trade and more walls and tariffs.
At the core of his book are six convincing chapters on “products that make the case for trade”, from bananas to cars to Game of Thrones. Along with the standard but often overlooked case for the benefits of better supply, choice and prices, Hochberg makes two essential points regarding trade’s benefits.
First, there’s no percentage in trying to unscramble the globalisation omelette. In a section titled “There’s No Such Thing as an American Car”, he points out that the car with the “highest portion of US parts, labor and assembly” is a Honda. These chapters belie Trump’s atavistic vision that his endless trade war will spur America to produce at home what it currently buys abroad. That cargo ship left the port decades ago.
Second, in car manufacturing as well as food, technology, video games and more, trade has forced US producers out of inefficient slumbers. The quality of Japanese auto imports unquestionably inflicted lasting wounds on Detroit, but they also forced its carmakers to up their game.
The problem, in a distinction that I would have liked Hochberg to ratchet up, is that people aren’t only consumers; they’re also workers — and some of those workers lose their jobs due to exports that are cheaper than their domestically produced output.
The usual pushback to this realisation, one that Hochberg makes repeatedly, is that far more people are helped than hurt by trade. Not everyone will find this convincing, and nor should they, especially if they live in a community lastingly hurt by global competition.
It is also true that those who lose jobs in one industry migrate over to others where their added supply puts downward pressure on wages. The EPI’s Josh Bivens estimates this negative spillover to amount to a loss of about $2,000 per year in earnings for all non-college-educated workers, not just those directly displaced by trade.
In other words, all those trade-induced low prices have a corollary in low wages. Trade economists have long understood that trade with low-wage countries hurts our low-wage workers. We just don’t talk much about it.
While some readers will wish Hochberg had leaned further into these downsides, he does not ignore them. In his final chapter, he explicitly and compassionately writes about those hurt by trade. Moreover, he’s surely correct that to the extent that we fail to address their reasonable grievances, we should expect them to oppose expanded globalisation.
Trade Is Not A Four-Letter Word: How Six Everyday Products Make the Case for Trade, by Fred Hochberg, Avid Reader Press, RRP$28, 301 pages
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and a former economist with the Obama administration
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Source: Economy - ft.com
