The ‘Fair Trade’ Myth

In today’s Washington Post, Robert Samuelson demonstrates that the arguments in favor of so-called ‘fair trade’ are, quite simply, nonsense:

American trade deficits haven’t destroyed U.S. job creation by sending work abroad. Consider: From 1980 to 2006, the trade deficit jumped from $19 billion to an estimated $786 billion, or from less than 1 percent of gross domestic product to about 6 percent. Still, employment in the same period rose from 99 million to 145 million. Job creation defies the trade deficits, whose causes lie largely beyond our control and have little to do with “unfair” trade practices.

And in response to ‘fair trade’ advocates such as Lou Dobbs, who argue that free trade is destroying American jobs, Samuelson says:

Faster economic growth in the United States than in many of our major trading partners has stunted our exports and increased our imports. Likewise, the dollar’s role as the main global currency — used for trade and international investment — has kept its exchange rate high. Companies, individuals and governments hold on to dollars rather than selling. This makes U.S. exports more expensive and imports cheaper. To be sure, that puts U.S. factory workers and farmers at a disadvantage on world markets. The disadvantage is compounded when some countries (China) keep their currencies artificially undervalued. Inevitably, some jobs move abroad and some factories close because of import competition.

But there are also larger truths. One is that China’s surging exports have (so far) come mostly at the expense of other Asian countries. Goods once shipped from Taiwan or Thailand now arrive from China. Another truth is that U.S. jobs are destroyed for many reasons — new domestic competition, new technologies, changing consumer tastes, the business cycle. A remarkable statistic: Every three months, 7 million to 8 million U.S. jobs disappear and roughly an equal or greater number are created. Trade is a relatively minor factor in job loss.

It is, however, an easy scapegoat. It enables critics to blame foreigners and suggest a solution: restrict trade. “Economic change is disruptive,” says economist Douglas Irwin of Dartmouth College. “If the cause is technology, you can’t do much about it.” Globalization becomes a convenient explanation for many economic discontents, from job insecurity to squeezed living standard

Exactly. It’s easier to blame the Chinese, or the Koreans, or whoever for the state of the economy than to look at internal causes such as the cost of government regulation or, quite honestly, the simple failure of American companies to respond adequately to foreign competition. There is a reason that Ford and General Motors are being beaten by Honda and Toyota, and it has little to do with the trade laws.

  • Brad Warbiany

    For more, check out Coyote Blog on these subjects, it’s truly one of the most concise and understandable blogs I’ve read on trade.

    I’m arguing on a blog right now where the proponent of “fair trade or no trade” just brought up the “trade debt”… This is computed by adding up the trade deficits from year to year over time. I asked who we owe this money to, and who owes this money (which you’d expect if we actually have a “debt”)…

    I’m still waiting for an answer from them.