Free Trade with China Wasn't Such a Great Idea for the U.S
bloombergview.com
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And maybe not. China is not exactly a free trade zone. There was a book written about it: http://www.amazon.com/Kicking-Away-Ladder-Development-Perspe...
PS: Wages are only one factor among many.
People in the developed countries do not understand what real poverty and despair is. If you had lived the lives they have, pollution would be your least concerns.
I am a Chinese born in and lived in China for 24 years. That Chinese lives have been dramatically improved in the last decade is as common sense as the earth being round here.
This discussion is off-topic. You should message me if you want to learn more about China. Your views on China is obviously through the lens of Western media, which are not wrong on the facts but usually misleading as they willfully ignores anything positive here.
https://en.wikipedia.org/wiki/Great_Chinese_Famine
I oppose any form of Socialism, but even I have to admit that China has improved far beyond anything we could have imagined 30 years ago.
It is now one of the largest economies in the world. People have housing, education and access to medical care. No one is starving there anymore.
And not only did they improve their own standard of living, they now go about investing in large scale infrastructure in Africa which has the potential to improve the lives of millions there in the long run.
PS: It's a 'what have you done for me lately' problem.
There's a kernel of truth there, but you have to open the gap much wider, many orders of magnitude wider, to the point it becomes more a philosophy question than one of economics, because the amount of money you'd actually have to give to one person to equal 999,999 very poor people getting $1,000 exceeds the amount of wealth in the world comfortably. (I don't even have to run the math; the exponential decay of utility makes this a done deal.)
I agree that it is a common error to mistake economics as being "about" money, one I think even at times PhDs in economics make, but it isn't about money. Money is merely one slightly special and easy-to-measure token in an economy, but it isn't really what economics is about.
Consider, stagnating US middle class wages are ignored when calculating 'economic growth'.
Free trade only really applies between countries, so that's a macro economic issue.
I'd have to [citation needed] right back at you on that. That verges on the mathematically impossible; it's written in the very basic most elements of economics itself. I wasn't kidding about the math completely failing if you don't have it; the entire concept of trade breaks down [1] without diminishing marginal utility.
What's more likely happening is that you're seeing Newtonian physics equations and complaining that the equations "neglect" quantum mechanics. They don't, really, they're in there, they just aren't obvious, and it breaks down when pushed too hard. (So non-obvious it took centuries to discover in this case, not relevant to the econ case.) If macroeconomic models don't appear to have a term in them directly that says "here's diminishing marginal utility", it's only because it's so deeply in the foundation you can't see it through the stuff built on it.
[1]: You might still get trade in a world without diminishing marginal value, but one in which you still have different personal valuations. However, instead of a world in which a lot of people have a little bit of everything, which is what we observe, you would get a world in which each individual has a lot of only the thing they value the most, having traded away everything else they have to everybody else to obtain that one thing they value most. If that sounds weird, well, yes, it is weird, because we can't imagine not updating our value functions based on what we currently have; it's so fundamental we literally can't imagine not having it. Note: This is not "wealth" concentration... in fact what you think of as "wealth" doesn't even exist in this world and it would indeed produce a world beyond desparately poor as these crazy people literally focus on food to the exclusion of water, or water to the exclusion of shelter, and so on. This is a world in which one person has all the oranges, and one person has all the apples, and one person has all the blue rocks above a certain size while another person has all the blue rocks below that size. It's not the world we live in. Diminishing marginal utility is a fundamental truth of the world, not some economic mumbo-jumbo... not having diminishing marginal utility would be the crazy economic mumbo-jumbo.
So, citation provided...
"It is self-contradictory to discuss a process which admittedly could not take place without money, and at the same time to assume that money is absent or has no effect." - F.A. Hayek, The Pure Theory of Capital, 1941: p. 31
Certainly, this is not to say economics is about money. However, to assume any form of monetary neutrality in the short or long run is a folly, for any economy governed by monetary exchange has a critical relationship with monetary and financial institutions. Monopolies on issuance of currency complicate recovery, as well.
If anything, many economists neglect money. Indeed, it was naive IS-LM models with interest-insensitive money demand functions was what ignited the so-called "monetarist counterrevolution".
but [money] isn't really what economics is about.
David Friedman, son of the famous Milton, wrote:
Economists are often accused of believing that everything – health, happiness, life itself – can be measured in money. What we actually believe is even odder. We believe that everything can be measured in anything.
To answer the obvious follow-up:
Economics is the study of choices: what makes a person choose Option A rather than Option B. So the core concept in economic is opportunity cost.
They rightly feel they earned their jobs. And rightly Americans feel their jobs were taken. Same coin, different sides.
I've never heard an economist claim free trade will lead to lower unemployment. I've heard that it will lead to more efficient markets. But efficiency != equality, and its completely possible the gains go to the top while the losses go to the bottom.
essentially it's not the job of market players to create fairness[1]. it's the job of the society around it - may it be local or global
[1] i would even go as far and saying that the player's desire is even unfairness (skewed in the players direction)
That's why initiatives like basic salary, pioneered now in Finland and also seemingly by Y Combinator - are so important.
Also I think huge opportunities are missed by not focusing on retraining people to industries where they can add value.
Freely available high quality education/(re)training across all age groups will pay itself back many times over.
Still there is much more that could be done, MOOC's are not the solution for everyone.
Did engaging in free trade with China negatively impact low-skill workers? Absolutely. But the answer to that is not to try to stop competition, it's to create more training programs and wealth redistribution. Furthermore, there are _plenty_ of jobs China can't take (construction, fruit picking, etc) but instead of wages for those jobs going up, America allowed Mexican workers (illegals, temporary foreign workers, and low skill legal migrants) to compete with an already over competing sector of the American workforce.
When farmers would remark that "Americans don't want these jobs" that is such a load of bullshit. Of course Americans want those jobs. They just don't want them at $5/hour. What should have been allowed to happen is that supply and demand should have done their thing and there would have been many hard, but good paying, low skill jobs in America.
In addition you'd see much more in the way of automation as people become too expensive.
That's why free trade agreements are so hard to negotiate, they screw people in one place while benefiting others in another place.
China, and the world, are better off, but tell that to the guy who has to feed his family but he lost his job as a manager at a factory in New Jersey. Not exactly easy to do.
The research being cited here is very specific to the current situation with China, and they recognize that themselves. The key difference (they believe) is that the China is so huge and has transformed so rapidly.
In normal circumstances, things would have happened slower, and the employees of affected industries would have had more time to seek alternatives, or to retrain, and so the impact on them would have been less negative.
This whole thing should make you ask why America was at a disadvantage because of the speed of Chinese transformation. In particular, what is it that's slowing America's ability to pivot? I don't have specific evidence to answer this question, but I believe the answer can be found by looking at our regulatory load, and how the difficulty of jumping through regulatory hoops is always increasing - compared to the Chinese, who in this respect have additional degrees of freedom.
Also, the idea that China has no regulation on business is ridiculous. Obviously you've never worked there!
In economics, "free trade creates additional wealth for all involved" is closer to consensus among economists than is "the Earth is warming" is among climatologists. The paper [1] that the OP references does itself say that their conclusion is peculiar to the circumstances of China:
"While these results do not at all suggest that international trade is in the aggregate harmful to nations--indeed, China's unprecedented rise from widespread poverty bears testimony to trade's transformative economic power--it makes clear that trade not only has benefits but also significant costs."
but NAFTA was a massive job killer
As it happens, Don Boudreaux [2] just published something relating directly to this:
"since NAFTA took effect Mexicans have invested more – 59 percent more, to be precise – in manufacturing activities in the U.S. than Americans have invested in manufacturing activities in Mexico."
Quoting Confucius again:
Obviously you've never worked there!
No, I haven't. But I've been there many times, and know many people who do work there. What I've observed myself is that for the average person on the street in Shanghai - say, someone making and selling pork buns, or a farmer bringing in a cart of vegetables from the country - there seems to be a significant laissez-faire attitude. At a larger scale - what we're talking about for international trade - my perception is that while China may have many barriers, knowing the right people and being able to "grease the wheels", makes things proceed relatively easily. In America our regulations are taken much more seriously - we don't have anything like their degree of corruption, but we also don't have that as a means to get around onerous rules.
[1] http://www.ddorn.net/papers/Autor-Dorn-Hanson-ChinaShock.pdf
[2] http://cafehayek.com/2016/01/which-way-flow-the-equity-inves...
EDIT: formatting
Except for, you know, the economists who penned the study that is the topic of this thread, along with plenty of others. On top of which, whenever someone spouts this falsehood, invariably it's economists who are looking at very narrow definitions of free trade, or very narrow definitions of "creating additional wealth". Is free trade good if the only gains in wealth go to a few people while most workers lose their jobs? Maybe the GDP increased, but for your average person it wasn't good.
The study does not say that the conclusion is peculiar to China, just that not all trade agreements are in aggregate harmful. Yes, China benefitted, but if it takes a population to be at starving level poverty to benefit from free trade, then I think your average American would say "no thanks".
Investment is not the same thing as employment. Mexicans may invest in American based companies, but those companies can outsource every last one of their employees if they so desire. Not to mention he says himself I realize that 5 of 21 years is too small a portion of time from which to draw any conclusions. Conservative estimates of job losses from NAFTA are in the realm of at least 700,000. It's pretty obvious that job losses are part of the deal when the government created the NAFTA-Transitional Adjustment Assistance Program to help people deal with losing their jobs as result of NAFTA!
There are many regulations in China. Sure there's more corruption there than here, but you seem to be advocating for America to become a more corrupt environment to improve America's "ability to pivot". Do you really think the brown paper bag economy is the way to go?
But you still hear the reverberations of people wondering where the blue collar middle class went. It went to other countries and made the desperately poor there into local middle class.
Still globalization is demonized when it has lifted millions of people from poverty. On the other hand economically mature nations have not prepared their workforce for these transitions by providing training and "insurance" during the decades long transition, as sectors change.
I find this argument to be a very weird one. How can you compromise your own citizens for the sake of other countries, while you obviously have no power over their course in history? What sort of government compromises the well-being of its citizens and the health of its economy for the benefit of other countries ? Since when does international trade regulations involve plain altruism and sacrificing your own?
What shocks is how you can still find many videos of Milton Friedman defending free trade, but to that point it almost sound like propaganda. I vividly remember that video when he went into a big asian city while praising the free market.
For example, seeing how much electronics are built in China, what is preventing the Chinese government to put heavy tariffs on those exports? I guess China doesn't have a monopoly on electronics, but I'm still a little curious.
Also, what evidence do you have that trade with Chinese will improve the welfare of those around you?
The jobs mostly affected by the free trade are low skill and therefore low wages jobs. Those jobs barely pay any income taxes.
International trade is not based on plain altruism. On both sides of the trade, some people benefit and some lose, but the net gains at both sides are positive. The article focuses on those hurt in US, but it does not mention how the US capitalists, consumers and workers not competing with China benefit.
> what is preventing the Chinese government to put heavy tariffs on those exports?
Chinese governments not only do not place tariffs on their exports, but also subsidies the exports. That is, the goods exported from China is cheaper than those sold directly in China. They do it for their own self interests.
As for why this study didn't focus on the benefits - maybe because there weren't any? Or maybe it's because the benefits mostly went to the executives of large multinational corporations who are lobbying for these deals?
The other comments have said plenty about the benefits, the most obvious being how cheap your daily goods are nowadays, effectively boosting the purchasing power of every American. In addition, had computers and smartphones not been so cheap because of the Chinese workers, the whole Silicon Valley bubble probably would never have come into existence.
> it's because the benefits mostly went to the executives of large multinational corporations
Why should the benefits of the executives be discounted? Perhaps you believe that the rich should not be made even richer; rather, the poor should receive the most benefits. Then why do you think that American workers, orders of magnitude richer than the Chinese, should be made even richer?
Because that's in the interest of their fellow citizens, since those citizens can vote to influence decisions that concern them, not the chinese. I don't think an american want a chinese to fail, but I don't think an american citizen really holds the fate of chinese people, and I don't think anybody should pretend otherwise. That's mainly about doing things that concerns you, and things that you can reach. The state of the chinese economy is in the hands of the chinese.
What I mean is that those decision are beyond the grasp or citizens and politicians. People should care about their own first, others second. Trade is fine, as long as there is no loss on your side. Maybe some want to believe that the world is one uniform place, but the reality of politics say otherwise. Sometimes you have to come back to basic strategy and realities.
What interest is that, to subsidy those export? In short they want to grow their market to weaken competition.
The central tenet of the rightist ideology is free market and free trade. That one is obvious.
The central tenet of the leftist ideology is wealth redistribution, that the rich should compensate for the poor. Thus, given that the Americans are orders of magnitude richer than Chinese, it is only fair that some of the wealth of Americans be redistributed to the Chinese. The international trade involve altruism for the same reason that the aristocrats altruistically share their (previous) privilege with the plebeians.
Also, I don't think shifting labor on poorer country can really be described as income redistribution. Labor isn't income.
Why should wealth redistribution be scoped by country, but not less, not more? The rich class in the United States want to limit the redistribution within themselves, and they are called greedy and evil. Yet when the lower class of the US want to limit the redistribution within the US, and refuse the share with the even poorer, they call themselves the paragons of virtue. Isn't it double standards?
And I'm not talking about income redistribution, but wealth redistribution. The opportunity to work is important in that.
I don't think you can really argue that politics should cover what is beyond the grasp of the US. Since when will people vote and decide on the well being of non-americans ? It's non sense.
You don't! Not collectively, not en masse, and not universally. MANY citizens win.
And even the people this hurts, they likely are better off because things are so cheap. Would you rather be unemployed in 2016, or 1916? In 2016, you likely have TV, a mobile phone and the internet.
The problem is usually in specific areas - geographic locations. A huge part is likely the unwillingness of people to move. Even in the midst of the GFC, mining towns in the midwest were booming.
> many videos of Milton Friedman defending free trade,
And the example he used - Hong Kong - is EVEN RICHER now. https://www.google.com.au/search?q=gdp+per+capita+hong+kong&...
Free trade DEFINITELY hurts people, but on the whole, makes life better for almost every citizen.
Here is some discussion on Marginal Revolution: http://marginalrevolution.com/marginalrevolution/2016/01/aut...
[1]https://en.wikipedia.org/wiki/Pareto_efficiency
[2]https://en.wikipedia.org/wiki/Kaldor%E2%80%93Hicks_efficienc...
2 things:
First, a couple of economists disagreeing with the mainstream, among the thousands of economic researchers, does not break a consensus. If we were to wait for unanimous agreement before embarking on any policy, we would never get anywhere. As the author himself admitted, there is a very strong and prevelent belief among economists that free trade is good for America and for the world in general. That should be good enough, despite a few dissenters believing differently.
Second, the study linked does not disagree with the consensus at all! All the study claims, is that a small portion of the population has not benefited from free trade. With any substantive public policy, this will always be the case. Imagine if California declared tomorrow that only people who've lived in CA for 5 years can work as programmers. Such a policy would be horrendously bad for Americans and Californians in general. But it sure would make life great for a small number of unemployed programmers who are currently living in California.
And so it is with free trade as well. It may benefit some and not benefit others, but the overall economic benefits far outweigh the costs, both for Americans and for the world in general. Even when considering those not benefiting from globalization, we can and should help them better by using the increased economic rewards that come from free trade, to build a better social safety net and education/training program for the unemployed. That would the positive step forward, not walking down the destructive path of protectionism.
Free trade has certainly caused problems, but domestic efficiency improvements have exaggerated those problems.
And there's also the fact that you cannot "price in" into any economic equations the improvement in life conditions brought in to the general public by the use of smart-phones.
Economics as a science needs a total re-think, or at least they should tone down their end-of-the-world statements.
The idea that without free trade with China only the 1% would be able to afford smartphones is total nonsense.
So I would change your statement as well.
Free trade is a huge benefit for humanity as a whole.
Open borders may or may not be a huge benefit for humanity, as we have not tried it yet. The current economic migrant crisis will be a good starting point for an investigation and we will see if they integrate well.
But, certainly not. Mercantilism benefits corporations much more strongly. Diseconomies of scale can be mostly inhibited through a strategically designed trade and fiscal policy. Slower falling unit production costs and opportunities for price fixing abound, as the "nation" (well, non-aristocratic taxpayers, anyway) bears these costs. Nor do tariffs necessarily reduce unemployment. The mercantile firm may well decide to keep its selling prices stable at a markup (especially given its lower customer base) and just lay workers off in event of supply shocks or other.
Protection is a Faustian gambit for more rapid growth today at the expense of hulking inefficient corporations tomorrow. Corporations that would not exist without it.
Mind you, I don't believe that economics is a zero sum game. It's just that economists refuse to acknowledge their ideological biases which muddies the discussion. Ideologies are fine if you're willing to state your position and defend it with facts. But that's not how economists seem to be working (orthodox and heterodox schools all do it) an angle to insert their favored ideology into the political machine through fraudulent means (by avoiding public discourse and popular referendum). So the rest of us who aren't at Harvard or the University of Chicago pay the price for their reindeer games. All I have to do is look at my home town of Wichita to see the causalities of all this.
That is the point that always gets left out. Cause and effect is a very real thing.
EDIT: This was apparently controversial. Voted up quickly and voted all the way back down at the same speed.
When you make this sort of argument you are implicitly saying "Chinese people don't mind being poor as much as Americans do" even if that's not what you meant to say.
Even without unions, the cost of living disparity is such that in many cases if American firms matched the wages of even relatively well paid Chinese workers they simply couldn't survive on them in the US.
This era of massive fossil fuel use in an incredibly short time is like borrowing from the past and the future at the same time.
Labor is expensive in the US because the standard of living is high. Labor is cheap in China because the standard of living (at least among the cheap laborers) is much lower.