The truth and not truth about the impact of openness to trade

Job losses in manufacturing states such as Pennsylvania, Ohio, and Michigan have made trade a key problem in America’s presidential election. Hillary Clinton is not supporting the TPP trade deal she had before favored. The demise of furniture makers and textile firms, unable to compete with low-cost imports, belies the forecasts made by her husband. Mrs. Clinton’s challenger in the Democratic Party primaries, Bernie Sanders, said trade deals had been “a catastrophe for American workers”. A YouTube video earlier this year revealing the graceless manner where leaders of Carrier, a maker of air conditioners, told its workforce that it was transferring production to Mexico seemed to support every fear about the departure of jobs and the heartlessness of capitalism.

The years after the NAFTA arrangement came into force, in 1994, were really fairly good ones for America’s economy, including manufacturing. However, China’s assent to the WTO caused a big shock. The state’s size, and the speed at which it conquered not poor -world markets for low-cost production, makes it unique. By 2013 it’d captured one-fifth of all manufacturing exports worldwide, compared with a share of only 2% in 1991.

This coincided with a fresh decline in factory jobs. America lost almost 6m manufacturing jobs in net terms. Since America is a large and dynamic location where around 5m jobs come and go every month which could not be as dramatic as it sounds. Still, when David Autor of the Massachusetts Institute of Technology (MIT), David Dorn of the University of Zurich and Gordon Hanson of the University of California, San Diego, looked into the job losses more closely, they discovered something worrying. At least one-fifth of the fall in factory jobs during that interval was the direct consequence of competition from China.

Also, the American workers who’d lost those occupations neither discovered new ones shut by nor sought for work farther afield. They swelled the ranks of the unemployed or, more generally, made the workforce. That contradicts the widespread idea that America’s occupations market is flexible and unstable. They often stay put, when men lose a factory job. Those who managed to locate new jobs were working in businesses that have been exposed to competition and were paid.

From the Economist.