Trade denialism seems to be a fast-growing sector of the economy these days. Robert Samuelson, the Washington Post columnist, is one of the leading practitioners. In today's column, he has a new study by Gary Clyde Hufbauer and Zhiyao “Lucy” Lu from the Peterson Institute for International Economics, which tells us both that the job loss from imports was not a really big deal and also that we have gained hugely from trade.
The gist of the job loss exercise is to take the period from 2001 to 2016, measure the growth in imports, and then calculate the job loss over this fifteen year period. As Samuelson tells us:
"...the Peterson study estimates that from 2001 to 2016, imports displaced 312,500 jobs per year . Even this overstates the impact, because it ignores exports. In the same years, they boosted jobs by 156,250 annually, offsetting half the job loss."
He then tells us this is no big deal in an economy with 160 million workers that adds 200,000 jobs a month.
Some folks may beg to differ. First, the growth in exports doesn't really offset the gross job loss due to increased imports. The exports are generally in different industries and almost certainly in different factories. In other words, the jobs lost due to imports is the figure we should focus on in terms of the people who are seeing their lives disrupted.
It is also worth noting that the trade-related job loss was heavily concentrated over a narrow period of time, the explosion in the trade deficit from 2001 to 2007. While this took place during the George W. Bush presidency, the main cause was the run-up in the value of the dollar from the Clinton years, so we can make the blame bipartisan.
Anyhow, using the study's methodology, we get that the economy lost an average of 620,000 jobs a year due to imports in these six years, with almost 400,000 of the yearly job loss occurring in manufacturing. This means that almost 15 percent of the people employed in manufacturing may have seen their jobs disappear due to imports in this six-year time period. That doesn't seem like a minor issue.
Even this figure may understate the impact for two reasons. First, Susan Houseman, an economist at the Upjohn Institute, has argued that we undervalue the items we import because our methodology assumes that a dollar of an imported item has the same value as a dollar of a domestically produced item. Insofar as Houseman's criticism is correct, a dollar of imported manufactured goods displaces more than a dollar of domestically produced goods. (For price index fans, this is a variation on the new goods bias that supposedly leads the Consumer Price Index to overstate the true rate of inflation.)
The other reason that the jobs numbers may understate the impact of imports is that they don't count the wage impact of having low-cost imports available. This is a fairly straightforward point. If the price of oil on world markets plunges to $40 a barrel from its current level of near $50 a barrel, the price of oil in the U.S. will also fall by a comparable amount. There may be little change in the amount of oil actually imported to the U.S., but the potential to bring in oil costing $40 a barrel will force the price here down close to that level, even if relatively little oil is brought into the country.
In this vein, the fact that we can now get a wide variety of manufactured goods at lower prices from other countries means that the price of their domestically produced counterparts will fall also. This will put downward pressure on the wages of even the manufacturing workers who are able to keep their jobs. (Sometimes this effect can be very direct, as when an employer threatens to move a plant to Mexico or China if workers don't take pay cuts.)
But if we move beyond the trade denialism, let's ask about the path forward. Samuelson correctly says we can't roll back the globalization of recent decades. It would make neither political nor economic sense to try to reinstate tariff barriers to block imports. (Getting the dollar down against other currencies — most importantly China's — is a different matter. This is doable and does make sense.)
What we can do is to structure globalization so it doesn't primarily hurt the working class. For example, the focus of future trade deals can be reducing the barriers that prevent large numbers of foreign-trained doctors, dentists, and other professionals from working in the United States. By setting clear standards that could be met anywhere, we can hugely expand the potential labor pools in the most highly paid occupations.
Our doctors get paid more than $250,000 a year on average, while our dentists get over $200,000. In both cases, the pay is roughly twice that of their counterparts in other wealthy countries. There are enormous potential gains to people in the United States from bringing pay in these professionals down to the levels in other wealthy countries.
We should also be looking to reduce rather than strengthen patent and copyright protection. These are enormously costly forms of protection. In the case of prescription drugs alone, we will spend $440 billion this year from drugs that would likely cost less than $80 billion in a free market. In many cases, patent protection raises the price of a drug more than 100-fold above the free market price, the equivalent of a 10,000 percent tariff. There are more efficient mechanisms for supporting innovation and creative work (see Rigged, chapter 5 [it's free]).
It is unlikely our "globalizers" will want to support the globalization agenda laid out here. They are interested in globalization that redistributes upward and they get paid to tell the victims that they have nothing to be upset about. There is not much of a market for promoting globalization that reverses this upward redistribution.