Article

What’s Trade Got to Do with It?

Global trade and rising prosperity are intertwined, but not everyone wins, writes Sabina Dewan. The United States should adopt progressive policies to harness and distribute the gains from trade.

Piles of containers at Waigaoqiao Container Port are seen in Shanghai, China.The Obama administration has an opportunity to offer a new vision for trade as a vehicle for progress that strengthens the middle class both at home and abroad—the backbone for a strong America in a vibrant global economy. (AP/Eugene Hoshiko)
Piles of containers at Waigaoqiao Container Port are seen in Shanghai, China.The Obama administration has an opportunity to offer a new vision for trade as a vehicle for progress that strengthens the middle class both at home and abroad—the backbone for a strong America in a vibrant global economy. (AP/Eugene Hoshiko)

A year ago, public support for free trade agreements was the lowest it’s been in over a decade. Since then it has rebounded somewhat. Today, 44 percent of those polled by the Pew Research Center think that free trade agreements such as the North American Free Trade Agreement and the policies of the World Trade Organization are good for the country. This is up from 35 percent a year ago. Despite declining growth in gross domestic product in 2009 and higher unemployment that continues to mount, fewer people seem inclined to see trade agreements in the same negative light.

So what gives? The truth is that trade is complicated and people have complicated views about it.

On the one hand strong empirical evidence suggests that increasingly free and unrestricted trade in goods and services contributes to worldwide economic growth. There’s no question that trade accounts for a large part of the economy. In the United States, goods and services trade (exports plus imports) were equal to 30.8 percent of U.S. gross domestic product, with exports accounting for 13.1 percent of the U.S. economy in 2008. Some estimates suggest that since World War II American real incomes (after adjusting for inflation) are 9 percent higher than they would otherwise have been because of trade liberalizing efforts. Nine percent represents $1.3 trillion in additional American income in terms of the 2008 U.S. economy.

In a number of countries, such as China, India, and Brazil, as the ratio of exports to GDP doubled, per capita GDP increased by an average of 5 percent per year between 1990 and 2007. Countries that did not take part in increased trade did not fare as well, some seeing their per capita GDP decline by an average of 1 percent between 1990 and 2007.

On the other hand, trade also sets off a restructuring of economic activity favoring some sectors, industries, and people over others. Trade requires countries to reorient themselves in an increasingly global marketplace with new competitive pressures. In the process some workers gain jobs while others lose them; some workers see their wages rise while others see them stagnate or decline. Indeed, in the United States, growth in real wages has been minimal for most American workers since 1979 despite increases in productivity.

It is no surprise, then, that public support for free trade see-saws, and the debate on the merits of trade continues to reverberate. For every argument there is a counterargument and both are often consonant with most people’s personal experiences. They see jobs lost and stagnant wages. But they also see free trade contributing to economic growth and the importance of trade to our economy. And they see the most obvious benefits of trade going to a few—to the owners of corporations, top executives, and highly educated workers. But they also see the cheaper prices they pay for items labeled “Made in China, Mexico, or Bangladesh.”

Truth be told, it’s hard to add this all up and come to a single answer about trade. Trade creates winners and losers, as has now been widely observed. It redistributes wealth, goods, services, skills, and technology. And in the process some suffer direct loses and some undergo indirect losses.

Ultimately, to achieve sound trade policy that attracts broad support will first require establishing an honest narrative on costs and benefits of trade and, second, require a set of policies to ensure that those who are hurt by trade, directly or indirectly, through job loss or lower wages, can also benefit from an expanding economic pie.

As the Obama administration prepares to make a statement on a new trade policy for America, it must start by imagining a world in which the economic growth perpetuated by trade is harnessed and distributed to benefit a broad base of workers—not just a few. This entails adopting a series of progressive policies that focus on providing Americans with economic security coupled with enhanced opportunity. These policies would equip Americans with the ability to protect their own security by making health care, housing, and other basic needs attainable by all, but also their economic future by providing opportunities for education, training, and skills development; for decent and productive employment; and ultimately for upward economic mobility.

And just as it is important to strengthen the institutions that provide economic security and opportunities to workers and their families here at home, it is also important to help build capacity to do so in other countries. Raising living standards in developing countries helps create new markets for American goods and services while alleviating the pressure on the American consumer to propel global economic growth.

The Obama administration has an opportunity to offer a new vision for trade as a vehicle for progress that strengthens the middle class both at home and abroad—the backbone for a strong America in a vibrant global economy.

So yes, trade is complicated. Americans want an economy that works for everyone, that offers people economic security and opportunity. In such an economy, accompanied by an honest discussion of trade, people won’t veer between being “for” trade or “against” it, but put it in its proper context as a vital piece of prosperity for our nation and the world, but recognizing that it has some negative consequences that need to be addressed through progressive policies.

Sabina Dewan is Associate Director of International Economic Policy at the Center for American Progress. To learn more about our economic policy proposals go to the Economy page on our website.

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Authors

Sabina Dewan

Senior Fellow

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