Revisiting the outcomes of the 21th century Chinese import boom

The conventional wisdom among economists is that the post-2000 Chinese import boom—which we know rapidly devastated the American manufacturing base—was overall good for the U.S.; that (as I argue) artificial barriers to trade generally make both parties poorer, and over the long run trade ends up lifting all boats. While I think it will always be true that trade barriers increase the price of products, a lot of the other assumptions may not be true.

If it’s good to reduce trade barriers with a country, is it wise to do it overnight? We now realize that a small policy shift in 2000 boosted the confidence of companies to move manufacturing jobs to China and of the Chinese government to invest in infrastructure to meet that demand. Many American towns were built slowly on the backbone of manufacturing and rapid closing have made economic recovery in those areas almost unimaginable. The advice to “move to where the jobs are” is almost always given by people employed, who can afford moving costs, and who don’t have local family members to support.

Can Americans get by without manufacturing jobs? Economists generally say this will free up workers to do more high-level jobs, but we’ve clearly failed at efforts to raise the education level and prospects of the bottom third of wage earners. It’s looking like the people who left monotonous, but stable, decent-paying factory jobs of yesteryear do not end up in better service industry jobs. Instead, those jobs were replaced by 1) part-time jobs of lower wages and constantly-shifting scheduling—hurting workers’ abilities to form and maintain families, and 2) destructive periods of unemployment.

Aren’t the “losers” of trade liberalization a small number of factory workers? Putting a few thousand people out of work impacts their families and all the businesses they and their families frequent, and it also destroys a large social network that was probably valuable to families.

Is the under- and unemployment of a large population of Americans worth cheaper products? It seems to me that Americans would’ve been just fine had the prices of products stayed at the level they were in the late 90s or lowered more slowly. At a certain level of wealth, more products and bigger homes don’t increase real prosperity, and particularly if those come with the awareness of increased suffering of your fellow citizens.

Wasn’t this worth lifting the Chinese out of poverty? The rise of China’s middle class is certainly a win for billions of people, but rapid export to the U.S. did not do that. China left poverty not because the West invaded it with factories, but because its leaders embraced capitalism and it had a ton of untapped potential. Had the U.S. not outsourced so rapidly, China still certainly would have industrialized, and maybe without such problems of pollution and inequality.

The timing of rapid globalization also sadly coincided with the big-boxification of retail. By the 90s, Wal-Mart was such a retail behemoth that it could dictate the prices of goods it was willing to pay suppliers and essentially make or break a supplier. Under this this intense pressure, suppliers had little choice than to sacrifice American factory jobs; Wal-Mart built their company on “Made in the U.S.A.” yet knowingly forced suppliers to outsource American jobs to save pennies per product. Consumers of course had no idea that trade-off was being made. There’s still not a satisfying answer to the question of is a community better off as a whole with one Wal-Mart than dozens of smaller retailers, but I’d wager that the transition and its speed—the closing of a large number of competing stores along with U.S. factories—was not good for communities.

We, of course, can’t say for certain what would’ve happened had trade with China not progressed or had it progressed more slowly. It’s also not clear we can “turn back the clock,” but when we negotiate trade deals we should definitely think more of the millions who may be displaced, maybe permanently, and of the bigger effect that can have on America as a whole. Economists were massively naive to think this would all wash out, but then economists weren’t driving this; U.S. big box shareholders decided this was necessary.

Kristof on Haiti & Trade

I can’t agree more.

Ultimately what Haiti most needs isn’t so much aid, but trade. Aid accounts for half of Haiti’s economy, and remittances for another quarter — and that’s a path to nowhere.

The United States has approved trade preferences that have already created 6,000 jobs in the garment sector in Haiti, and several big South Korean companies are now planning to open their own factories, creating perhaps another 130,000 jobs.

“Sweatshops,” Americans may be thinking. “Jobs,” Haitians are thinking, and nothing would be more transformative for the country.

Let’s send in doctors to save people from cholera. Let’s send in aid workers to build sustainable sanitation and water systems to help people help themselves. Let’s help educate Haitian children and improve the port so that it can become an exporter. But, above all, let’s send in business investors to create jobs.

Otherwise, there will always be more needs, more crises, more tragedies, more victims. Back in the cholera treatment center here in Mirebalais, health workers were still disinfecting the bed on which Mr. Merilus had died when, in the tent next door for milder cases, a middle-aged woman suddenly collapsed.

Nurses splashed water on her face but could not revive her. So they rushed her to the main cholera hospital tent to take the newly vacant bed there.

And that is the brutal cycle of poverty in Haiti that only jobs and trade can break.

“Buy American”

When economies are struggling, protectionism seems well-intentioned: By “buying American” we can go back that golden fantasy age when everything was American-made and everyone had a decent-paying job and could afford the latest luxuries. I have some examples that I hope can convince you that freer trade benefits everyone. It’s not completely intuitive; we commonly think that one person is always screwed in a deal; if it’s good for [insert foreign country], it must be bad for America. Continue reading