Making Sense of Anti-trade Sentiment

International Trade and the American Worker

R. White

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137373250
• Topic: Economics
• Subtopic: Macroeconomics
• Index: Economics

Examining the extent to which trade adversely affects domestic workers, Making Sense of Anti-Trade Sentiment documents statistical relationships between exports and imports and domestic employment/wages.

PART I

Why It Is Important to Understand Anti-trade Sentiment

Trade is an integral part of our daily lives. In fact, it is very reasonable to say that trade is necessary for each of us to maintain the quality of life to which we have become accustomed. Can you imagine suddenly having to produce all of the goods that you consume? Obviously, producing those goods and services would be quite a task. Quite likely, if you were to attempt such a feat, you would likely soon realize that you are incapable of producing almost everything that you consume and that most of the goods and services that you are able to produce would be of a lesser quality than those you typically purchase. For those products for which you are able to approximate the quality of what you would purchase, the time required for you to produce the reasonable substitutes would quite likely constitute a significant portion of your time. A more common scenario involves a member of the American public trading her time to an employer—effectively, selling her labor services—and trading the resulting compensation (i.e., the wages or salary received) for the products she is either incapable of producing or that she cannot produce very efficiently. We trade, in one form or another, nearly every day simply because it makes our lives better.

Notice that, in the above paragraph, I do not indicate whether the individual sold her labor services to a domestic firm or to a foreign firm. I also did not indicate whether the goods and services she purchased with her labor income were made in the domestic economy or were imported. I purposely neglected to include these details in order to stress that they are inconsequential. Trade is a mutually beneficial, voluntary exercise. It is welfare enhancing for the buyer and for the seller. If this voluntary exchange involves parties located within the same economy, both are better-off. If it involves parties that are located in different economies, both are still better-off. Even though political boundaries are irrelevant in this context, we consistently find that a large minority of the American public expresses negative views when asked opinion poll questions that relate to various aspects of international trade. It has been suggested that the primary motivation for the observed negative opinions of international trade is a fear of detrimental trade-induced labor market outcomes (i.e., reduced wages and/or job loss). Further, it is posited that the American public exhibits risk-averse preferences for international trade and relies on incomplete information when formulating opinions of trade.

In this book, we seek to 1) develop an understanding of the extent to which the American public supports (and opposes) international trade; 2) determine whether the American public is, relative to other countries for which data are available, more (or less) supportive of trade; 3) find evidence that may justify the observed level of anti-trade sentiment by estimating the extent to which US workers suffer adverse trade-induced wage and employment effects; 4) examine possible factors/public policies that may increase support for international trade; and 5) identify what underlies the reluctance of some members of the American public to view trade in a more positive light. Developing an understanding of why a large share of the US public expresses negative opinions of international trade is beneficial since understanding the factors that underlie anti-trade sentiment is necessary if policymakers wish to work to reduce opposition to trade. It is also beneficial as understanding anti-trade sentiment allows us to better understand the world in which we live.

We begin this book by considering the extent to which the American public supports or opposes international trade. This includes a review of recent macroeconomic trends in search of evidence that supports the observed anti-trade views. The material presented in chapters 1 and 2 suggests that, while a majority of the American public views trade favorably, there is a large and seemingly persistent proportion of the public that holds negative views of international trade. We do not find, however, at the macroeconomic level, a clear justification for the observed anti-trade sentiment. Pursuing the possibility that micro-level (i.e., individual) fears of detrimental trade-induced labor market outcomes underlie observed anti-trade sentiment, in chapter 3 we construct and calibrate a model that illustrates trade-related labor market outcomes. The first two chapters frame the discussion that follows in subsequent chapters. The calibration exercise provided in the third chapter serves as a bridge from the stylized facts presented in the first two chapters to the empirical analyses that follow in part 2 of the book (i.e., chapters 4 through 8).

CHAPTER 1

Nearly Two Centuries Have Passed since David Ricardo . . .

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

David Ricardo (1817)

Almost two hundred years have passed since the publication of David Ricardo’s On the Principles of Political Economy and Taxation. Ricardo instructs us to devote our limited resources toward the production of what we do best, as defined by our opportunity cost of production, and to then trade the resulting output for what we are relatively less capable of producing. This description of the passage quoted above, while correct, is incomplete, however. Ricardo’s words do more than prescribe a course of action. Much to the contrary, what they offer is a description of our individual behavior. Perhaps this explains why, during the past two centuries, no one has proposed a legitimate counterargument to comparative advantage as the basis for mutually beneficial exchange.

Ricardo’s statement references countries, but comparative advantage is the basis for the exchanges we undertake as part of our daily behavior. I earn my living, primarily, by working as an economics professor. I did not construct my home, I did not build my car, I do not grow the foods that I eat, I do not cut my hair, I have never made my own clothes, and so on. Instead, I provide my labor, doing what I do well, in a relative sense, and in return I receive income. That income largely constitutes the budget that I use to acquire the goods and services that I am relatively poor at producing. The money/currency merely facilitates exchange. Effectively, I trade labor services in return for my housing, for my car, for my morning coffee, for my haircuts, for the shirt I am wearing, and so on.

Is the validity of comparative advantage conditional on whether the goods and services I consume are produced in the country where I live? No, it is not. I live in the United States. My car, for example, is an import from a high-wage country. My clothes are, in nearly all instances, imports from relatively low-wage countries. My haircut? A domestically produced service. My dinner? Perhaps the vegetables are from California’s Central Valley, while the entrée may include imported spices. My point is simple: in our daily economic lives, as individuals we behave in accordance with Ricardian comparative advantage. I act, as do my students, friends, family members, neighbors, colleagues, and so on, in a manner that is consistent with rational self-interest. We each focus our productive energies on the activities at which we are relatively capable and for which there is labor demand. Thus, we allocate our productive resources and efforts such that we earn the incomes/budgets necessary to acquire those goods and services that we are less capable or poorly suited to produce on our own. This behavior generally leads to enhanced economic well-being. I use the word “generally” in this last sentence simply because, like others, I often make economic decisions based on incomplete or imperfect information, and this can sometimes produce suboptimal outcomes. Think of the last time you experienced “buyer’s remorse” as an illustrative example. Generally speaking, however, the point remains.

It is likely obvious that I think quite highly of this concept of comparative advantage. I am not alone in holding this view. Economics has few “laws,” and none may be more meaningful than the Law of Comparative Advantage. A well-known, related story about comparative advantage involves Paul Samuelson, arguably the most influential economist of the twentieth century, being asked by mathematician Stanislaw Ulam to “name me one proposition in all of the social sciences which is both true and non-trivial.” Samuelson offered comparative advantage as his response: “That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them” (1969, p. 9). Samuelson’s statement is, in many ways, the basis for this book. More specifically, the words “who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them” primarily motivate this work.

Why is it, so many generations after Ricardo’s rather simple example of the benefits to be garnered from specialization and trade, that a sizable portion of the American public continues to express wariness, or reservations, or outright dislike (or distrust?) when asked about international trade? Further, why are members of the American public more likely to express a negative opinion of international trade as compared to individuals who live in all other countries for which relevant public opinion poll data are available? We address these questions/topics with the goal of contributing to a better understanding of American public opinion on the topic of international trade. We hope that the information contained in this work will be of interest to the public at large, will be useful for researchers and academicians, and will be of value to policymakers. This last group, policymakers, is of particular interest for the obvious reason that they set trade policy. They also are accountable to their constituents, some of whom hold negative views on the topic of international trade.

To provide an indication of the degree to which members of the American public express negative opinions of trade, let us look at the top-line findings from a few recent public opinion polls. The 2011 Pew Global Attitudes Project (GAP) asked respondents the following question:

What do you think about the growing trade and business ties between (survey country) and other countries—do you think it is a very good thing, somewhat good, somewhat bad or a very bad thing for our country?

Overall, Americans were found to be supportive of growing int...

Table of contents

• Cover
• Title
• Part I Why It Is Important to Understand Anti-trade Sentiment
• Part II In Search of Stolper-Samuelson(-like) Effects
• Part III The Smooth Adjustment Hypothesis and Policies That Assist Trade-displaced Workers
• Part IV Making Sense of Anti-trade Sentiment
• Notes
• References
• Index