Is Trade Good or Bad for Americans?

Trade agreements have become a hot-button issue in the 2016 presidential election. Not long ago, most voters accepted the idea that trade, over the big picture, at least, is good for Americans. Americans generally like capitalism, and free trade is one of its pillars. But views are changing. A Pew opinion poll in March found that, while most voters still support trade deals with other countries, increasing numbers see free trade agreements as bad for the United States.

The immediate focus of this tension is the Trans-Pacific Partnership, an agreement that’s been negotiated but not yet ratified by Congress. It is meant to ease trade among the United States and 11 other nations in the Pacific region, and importantly, to provide a counterbalance to China, which is not one of the 12 would-be signatories.

Where they stand

Let’s begin with where the two major party candidates stand on the issue:

• GOP presidential candidate Donald J. Trump promises to impose tariffs on Chinese imports, renegotiate the North American Free Trade Agreement (NAFTA) and refuse to sign the TPP. Republicans traditionally have been pro-free trade, but not Trump. He advocates taxing imports to force U.S. companies to use American labor in manufacturing.
• Democratic presidential candidate Hillary Rodham Clinton historically has liked some trade deals and disliked others. She did initially support the TPP but says new information convinces her it’s not in our best interests, despite President Barack Obama’s desire to pass the deal. She needs support from unions and perhaps she was swayed by the popularity of her rival Sen. Bernie Sanders’ opposition to deals that he says lacked “safeguards to protect American jobs and the environment while giving massive benefits to large multinational corporations.”

Although politicians like to take a strong stand on free trade the truth is that its costs and benefits are complicated. Not only that, but the practice is as old as any civilization on Earth. It is basic human nature to trade in things gathered, produced, harvested and made. Usually the real conflict is over who has the upper hand under the existing trade rules and who is bending the rules. Here are some of the ways that it works in the real world, pro and con.

Trade: Pros

Trade delivers a big bonus to consumers: cheap goods. Low labor costs abroad let Americans enjoy cheap imports — clothes, shoes, toys, household goods, consumer electronics, fruits and vegetables and pet food, just to name a few.

“Americans have higher living standards because trade enables them to afford more goods,” Jeffrey J. Schott, an author, economist and U.S. government trade negotiator writes in The New York Times. Schott says workers in U.S. companies that export their goods “generally earn wages 12 to 18 percent higher than their counterparts in firms that only serve the domestic market.”

Job losses don’t tell the whole story since trade also creates jobs, supporters say. According to USA Today:

Opening U.S. borders to imports also lowers prices for consumers and creates jobs for Americans who distribute or sell imports. Trade also fuels economic growth in developing nations, which increases demand for U.S. exports and creates new manufacturing and service jobs in the United States.

“Trade — like technology — destroys some jobs but creates others,” write Anthony B. Kim and Brian Riley, policy analysts for the conservative Heritage Foundation.

Trade: Cons

The benefits have come at a cost that has been borne mostly by U.S. workers, their communities and small businesses that serve them. Buying cheap goods from abroad meant losing high-wage manufacturing jobs.

“Generally … the benefits of globalization flow largely to investors and consumers while workers bear a disproportionate share of the costs, depending on how well-educated, skilled, and mobile they are,” blogs James L. Heskett, a retired Harvard Business School professor.

Robert Scott, an economist at the Economic Policy Institute (which is partially funded by unions) calls for a “re-set” on trade agreements, to reconsider the costs to American workers.

• “The agreement allowing China into the World Trade Organization led to trade deficits that eliminated 3.2 million jobs between 2001 and 2013 alone,” he writes in another Times article.
• Pointing to the 1994 NAFTA agreement between the U.S., Canada and Mexico, Scott writes at the EPI website, “More than 5 million U.S. manufacturing jobs were lost between 1997 and 2014, and most of those job losses were due to growing trade deficits with countries that have negotiated trade and investment deals with the United States.” (By “deficit” he means that the U.S. imports more goods than it sells abroad.)

Josh Bivens, another EPI economist, counters claims that free trade raises workers’ incomes. By 2011, trade with low-wage countries had reduced median wages for full-time American workers without college degrees by roughly $1,800 a year, he writes. Since workers without college degrees are about two-thirds of our labor force, that’s a huge impact.

Where do we go from here?

The politics of trade may make it hard for Congress to pass the TPP, even though this particular agreement won’t have a huge impact, according to a study by the U.S. International Trade Commission.

“TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy,” the study says, predicting that modest increases to the economy and the equivalent of 128,000 new full-time jobs would result.

Supporters of the pact, though, say the deal is important for other reasons — to offset China’s advance in the Pacific region (China is promoting its own Asian trade alliance) and because the TPP includes advances in labor, environmental and human rights protections.

The future of trade agreements, and of much else, will be determined by the presidential election this fall. What, if anything, do you think should be done about trade deals? Share your thoughts on Money Talks News’ Facebook page.