Recent claims of a massive number of US jobs being lost to China are woefully misleading. They miss the big — and positive — picture of international trade and financial flows.
The current debates taking place in Washington over the impact of trade on jobs should make every economist cringe. The current analytical structure for judging the impact of trade on jobs is incomplete and inaccurate, and has created an environment in which misinformation and misrepresentation can thrive.
In the worst cases, analysts focus solely on computing the number of manufacturing jobs lost due to imports. They do not count real jobs that have been lost, but instead calculate a number based on the value of imports. Some studies count manufacturing exports as well. This type of analysis at least acknowledges that some US manufacturing jobs exist only because of international trade. Typically, the manufacturing trade balance — a net of imports minus exports — is computed and some resulting job impact is asserted using labor factor productivity tables. This is the type of analysis used recently to trumpet huge job losses because of trade with China.
Better studies add in the impact of trade in services as well and typically report a much smaller number of jobs lost. None of these analyses, however, paint an accurate and complete picture of the impact of trade on Americans.
Generally ignored in the debate over the impact of trade are the non-tradable US jobs (jobs that cannot be performed in foreign countries) that are directly related to the process of importing goods into the US. Jobs in cargo handling, transport, warehousing, and wholesale and retail sales, for example, fall into this category. The largest US private sector employer, Wal-Mart, is primarily an importer. Members of the Longshore and Teamsters unions depend in large part on income related to imports. Any analysis of the job impact on trade that fails to include such “non-tradable” jobs provides a distorted picture. A search of the relevant literature reveals few such studies, a serious gap in US economic knowledge.
In addition, failure to account for the jobs impact of the capital account (financial flows), as well as the current account (trade in goods and services) undercounts the gains from trade. Economists do talk about the positive jobs impact of foreign direct investment in the US that is certainly a vital factor in increasing US employment and productivity. Most studies that include investment flows report positive overall economic and jobs impacts. Still, this leaves out part of the story: Rarely counted are the job effects of the domestic financial services (banking, insurance and investment services) that handle the recycled financial flows.
Finally, no account is taken of the jobs impact of trade on US government employment. Some foreign governments (China prominently among them) recycle a significant part of the money they earn from exports by buying US government securities. These securities finance a major part of the activities of the US government and thus are responsible for funding a share of US government jobs.
When you look at the big picture, what emerges is an overwhelmingly positive impact of trade on US jobs. On the negative side are the manufacturing jobs that are moving from the US to foreign countries as the US’ comparative advantage shifts to higher value added, higher productivity and higher wage sectors. Other manufacturing jobs are gained, but the net effect for manufacturing is probably negative.
The positive side, however, is overwhelming: US jobs attributable to the process of importing; jobs gained by foreign investment in the US; jobs gained in the US financial services sector handling the capital account flows and US government jobs financed by foreign purchases of US government bonds (a positive at least for those who favor big government).
Not even considered in any of this are the beneficial effects on US consumers and manufacturers from the lower prices they pay for imported goods.
It is easy to talk about jobs lost in manufacturing and even easier to illustrate such talk with compelling anecdotes and pictures of real Americans who have lost their jobs. The pain of such individuals is real, and Americans should try to help them adjust and move on to new jobs. The wrong solution is to shut off or restrict the process of international trade, which has huge benefits for the US economy overall, including the creation of other jobs and improvements in the US’ standard of living.
If Americans do not see the big picture, actions taken to help the few on whom this nation’s eyes are focused can hurt those who are out of view: The longshoremen, truckers, bankers, insurance agents, marketers, retail clerks, warehouse workers and, yes, government workers whose jobs depend on the goods, services and financial flows associated with international trade deserve to be counted, too. Any trade analysis that ignores their interests will be, at best, only half right.
Terry Miller is director of the Center for International Trade and Economics at The Heritage Foundation.
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