Here's the Truth About Free Trade
This post originally ran on Robert Reich’s website.
Both Bernie Sanders and Donald Trump are blaming free-trade
deals for the decline of working-class jobs and incomes. Are they right?
Trade isn’t the only culprit. Technological change has also
played a part.
When I visit one of America’s remaining factories, I rarely see
assembly-line workers. I don’t see many workers at all. Instead, I find a
handful of technicians sitting behind computer screens. They’re linked to
fleets of robots and computerized machine tools who do the physical work.
There’s a lively debate among researchers as to whether trade or
technology is more responsible for the decline in factory jobs. In reality the
two can’t be separated.
Were it not for technological breakthroughs we wouldn’t have the
huge cargo containers, massive container ports and cranes, and satellite and
Internet communications systems that have created highly-efficiently worldwide
These systems have relocated factory jobs from the United States
to Asia, especially to China. Researchers find the biggest losses in American
manufacturing started in 2001 when China joined the World Trade Organization,
requiring the U.S. to lower tariffs on Chinese goods.
MIT economist David Autor and two co-authors estimate that
between 2000 and 2007 the United States lost close to a million manufacturing
jobs to China – about a quarter of the total decline in those years. Robert
Scott of the Economic Policy Institute puts the loss since then at about 3
This doesn’t mean free trade has been entirely bad for
Americans. It’s given us access to cheaper goods, saving the typical
American thousands of dollars a year.
A recent study by economists at UCLA and
Columbia University found that trade has increased the real incomes of the U.S.
middle class by 29 percent, and even more for those with lower incomes.
But trade has widened inequality and imposed a particular burden on America’s blue-collar workers.
If you’re well educated, free trade
has given you better access worldwide markets for your skills and insights –
resulting directly or indirectly in higher pay.
On the other hand, if you’re not well educated, the trade deals of the last
quarter century have very likely taken away the factory job you (or your
parents or grandparents) once relied on for steady work with good pay and
These jobs were the backbone of the old American middle class. Now
they’re almost all gone, replaced by lower-paying service jobs in places like retail
stores, restaurants, hotels, and hospitals.
The change has been a dramatic. A half century ago America’s
largest private-sector employer was General Motors, whose full-time workers
earned an average hourly income (including health and pension benefits) of
around $50, in today’s dollars.
Today America’s largest employer is Walmart, whose typical employee
earns just over $9 an hour. A third of Walmart’s employees work less than 28
hours per week and don’t even qualify for benefits.
The core problem isn’t really free trade, or even the loss of
factory jobs per se. It’s the demise of an entire economic system in which
people with only high-school degrees, or less, could count on good and secure
That old system included strong unions, CEOs with
responsibilities to their employees and communities and not just to
shareholders, and a financial sector that didn’t demand the highest possible
returns every quarter.
Trade has contributed to the loss of this old system, but that
doesn’t necessarily mean we should give up on free trade. We should create a new system, in which a greater share of Americans can be winners.
But will we? The underlying political question is whether the winners from
America’s current economic system – people with college degrees, the right
connections, and good jobs that put them on the winning side of the divide – will support new rules that widen the circle of prosperity to include those who
have been on the losing side.
Those new rules might include, for example, a much larger Earned
Income Tax Credit (effectively, a wage subsidy for lower-income workers),
stronger unions in the service sector, world-class education for all (including free public higher education), a
single-payer healthcare plan, more generous Social Security, and higher taxes
on the wealthy to pay for all this.
If the winners refuse to budge, America could turn its back on
free trade – and much else. Indeed, there’s no telling where the anger we’ve seen this primary might lead.