International Trade: Fact Versus Fiction

Photo courtesy of http://www.cmacgm-marcopolo.com
Photo Courtesy of www.cmacgm-marcopolo.com

By Vikramaditya Salwan

Staff Reporter

       Over the past few months there have been candidates who have staked their claim to become the President of the United States. Amidst all the big claims, the name calling and the promises, very few seem to notice how the rhetoric about trade is overshadowing facts. All these candidates have hit a raw nerve with frustrated Americans, who have had a direct impact due to international trade.

       The issue of international trade is much more complex and multidimensional than we think it is. To simply label it as good or bad makes us naive. The issue of International Trade is one of the most hotly contested debates and yet we somehow allow ourselves not to dig deeper to find what the actual story is. 

      Statements like, “China is killing us, Mexico is killing us, Japan is killing us” and “Mexico is unbelievable what they’re doing with industry. They are taking our business as though we are a bunch of babies” are factually flawed at every level. The outsourcing of unskilled jobs is inevitable because of lower wages and the dismal state of employee regulations of these two countries.

       However, this does not mean that the United States is worse off. The United States has an undisputed advantage in other sectors – technology, information technology, higher education, financial services amongst others. There have been a multitude of studies from distinguished economists that suggest trade is mutually beneficial, not competitive. There has been a higher percentage of Americans who have moved from low-skilled to skilled jobs because of the incentives and competitiveness offered by international trade.

       Empirical evidence suggests that in the long run trade has created more opportunities than it has lost. It also suggests that purchasing power of an individual has increased significantly today, due to greater efficiency. Twenty years ago was it easy for a lower-middle-income family to buy a sleek television? Probably not. Contrary to the popular notion that trade drives down the wage of low-skilled workers in developed countries, multiple academic studies have suggested quite the opposite. The wages of low-skilled workers in developed countries remains unaffected.

       Dr. Mena Bizuneh, who teaches International Trade at Pitzer, believes that “While the net gains from trade are easily measurable, the distribution of this net gain is not always evident. In fact, the distribution mechanisms, while in theory seem to function well, are in reality full of loop holes that enable to the winners of trade to keep the gain among winners. However, this lack of distribution is not evidence to labeling trade ‘bad’. Even with some sectors losing due to import competition the greatest benefit goes to consumers who pay lower prices for goods.”

       There are winners and losers when there is free trade and the argument then comes down to efficiency versus equality, which is a very subjective issue. Lack of either can have a detrimental impact on any economy, which is why most countries try to balance the negative impacts of trade with skill development programs and trade assistance packages in order to promote equality with efficiency.

       One should be privy to all facts, empirical data and both sides of the story and then make an informed choice. Don’t let yourself be fooled by the rhetoric.

ps – For those of you interested in reading more about international trade, here are some articles/ academic papers that may be of interest to you. Happy Reading! 

  1. P. Krugman, “What do Undergrads Need to Know about Trade?” American Economic Review, May 1993, p. 23 – 26
  2. R. Driskil, “Why Do Economists Make Such Dismal Arguments About Trade” (Foreign Policy, May 2008)
  3. P. Krugman, “Ricardo’s difficult idea” (1996, MIT)
  4. P. Krugman, “Does Third World Growth Hurt First World Prosperity?”, (Harvard Business Review, July-August 1994)
  5. M. Wolf, “ We Must Act to Share the Gains with Globalization losers”, (FT, September 2006)
  6. “In the Shadow of Prosperity” (The Economist, January 2007)
  7. R. Freeman “Are Your Wages Set in Beijing” (Journal of Economic Perspectives, Summer

    1995)

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