Free trade promotes economic growth and offers American consumers more choices through cheaper imports. While global trade agreements were supposed to be ‘win-win’ propositions, free trade creates losers as well as winners. Disruptions were expected to be transitory, with the losers – less-productive workers in industries exposed to greater competition – shifting to more-productive sectors or accessing robust ‘safety nets’ and effective retraining. However, some assumptions underlying free trade theory in 2000 were unrealistic. The ‘safety net’ for displaced workers was threadbare. Workers could not readily gravitate to the export-oriented sectors. And the effects of the U.S. dollar exchange rate were largely ignored. More importantly, the rapid pace and magnitude of China’s import penetration – partly enabled by accession to the World Trade Organization in 2001 and abetted by engaging in several unfair and likely illegal practices – caused more lasting damage than expected. U.S. workers displaced by a swelling wave of imports were concentrated in distressed enclaves, especially the ‘rust belt’ and the South, where similar jobs were not readily available. About one million manufacturing jobs were lost directly attributable to China’s trade incursion during 2000-10. Displaced workers, mainly blue-collar men, and their communities incurred severe and long-term damage by depressed wages and elevated unemployment rates. Unfair Chinese practices included: adopting a beggar-thy-neighbor policy of initially lowering the renminbi exchange rate to boost exports; stealth transfers of technology; demanding foreign-based companies divulge proprietary intellectual property and technology to gain access to Chinese markets; and restricting access to lucrative sectors, while subsidizing domestic companies with cheap state-backed debt. In addition to generating economic insecurity, ‘China shock’ and technological progress contributed to cultural anxiety, including social disintegration and “deaths of despair” in the ‘rust belt’. Mortality rates for ages 50-54 in advanced economies declined after 1990, except for America, where the rates for non-Hispanic whites increased beginning in the late 1990s. A multilateral, rules-based trade system has been vulnerable to persistent and growing trade deficits; widening global inequality; developing countries maintaining high tariffs, export subsidies and currency controls favoring exporters; China’s economic model that often appeared to deviate from global trade rules; and costly non-transparent subsidy-like policies. Retraining programs have largely been ineffective in addressing the hardships faced by trade’s losers. Education to acquire new skills and provide opportunities for advancement has not been readily accessible to all those in need. Broader issues underlying the growing gap – between trade’s losers and winners and between the alienated and the ‘elite’ – need to be addressed. Angry displaced workers maintain that – while globalization has been very beneficial to China, as well as to American corporations and shareholders – American workers have not reaped the benefits associated with globalization and expanded global trading. Two potential agents of change are education and taxes, which, as in much of Europe, pay for retraining and for the displacement costs of those who cannot be retrained.
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Apr 18, 2019
Urban J Jermann + 2
Open Access