Presidential candidates Hillary Clinton and Barack Obama, pandering
to anti-trade activists, suggest should they become president they will
restrict trade agreements. Before you buy into their promised paradise,
you might consider a few trade questions.
Suppose you were
choosing a country to live in. Would you prefer a country the world is
champing at the bit to put its money into or one where the world is
unwilling to invest? Let's look at the numbers.
States is the world's largest recipient of foreign direct investment.
According the Economic Report of the President, in 2004, foreigners
owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They
produced $515 billion of goods and services, accounting for 5.7 percent
of total U.S. private output, and employed 5.1 million workers, or 4.7
percent of the U.S. work force in 2004. According to the Congressional
Research Service, in 2006 alone, foreign investors spent $184 billion
investing in U.S. businesses and real estate, the highest amount
foreign investors have spent since 2000. My question to Mrs. Clinton,
Mr. Obama and the anti-trade lobby: Would Americans be better off if
there were no foreign investment in our country?
the Bureau of Labor Statistics, between 1996 and 2006, about 15 million
jobs were lost and 17 million created each year. That's an annual net
creation of 2 million jobs. About 3 percent of the jobs losses were due
to foreign competition. Most losses were due to technology, domestic
competition and changes in consumer tastes.
Some of the gain
in jobs is a result of "insourcing." Foreign companies — such as
Nissan, Honda, Nokia and Novartis — set up plants, hire American
workers and pay them wages higher than the national average. According
to Dartmouth College Professor Matthew Slaughter, "insourced" jobs paid
32 percent higher salaries than the U.S. average. So here's my question
to anti-traders: If "outsourcing" is harmful to the United States, it
must also be harmful to European countries and Japan. Would you advise
them to take their jobs home?
Wal-Mart has become the
whipping boy for political demagogues, unions and anti-traders. I
suggest they have the wrong target. The correct target is revealed by
answering the question: "Why does Wal-Mart exist and prosper?"
exists and prospers because tens of millions of Americans find Wal-Mart
a suitable source of goods and services. Mrs. Clinton, Mr. Obama,
unions and anti-traders should direct their outrage and condemnation at
the tens of millions of Americans who shop at Wal-Mart and keep it in
There is great angst over the loss of manufacturing
jobs. The number of U.S. manufacturing jobs has fallen, and it's mainly
a result of technological innovation, and it's a worldwide phenomenon.
Daniel W. Drezner, professor of political science at the University of
Chicago, in "The Outsourcing Bogeyman" (Foreign Affairs, May/June
2004), notes that U.S. manufacturing employment between 1995 and 2002
fell 11 percent. Globally, manufacturing job loss averaged 11 percent.
China lost 15 percent of its manufacturing jobs, 4.5 million
manufacturing jobs compared with the loss of 3.1 million in the United
States. Job loss is the trend among the top 10 countries who produce 75
percent of the world's manufacturing output (the U.S., Japan, Germany,
China, Britain, France, Italy, Korea, Canada and Mexico).
But globally, manufacturing output rose by 30 percent in the same
period. Research by the Federal Reserve Bank of St. Louis indicates
U.S. manufacturing output increased 100 percent between 1987 and today.
Technological progress and innovation are the primary causes for the
decline in manufacturing jobs. Should we save manufacturing jobs by
outlawing labor-saving equipment and technology?
Joseph Schumpeter referred to this process witnessed in market
economies as "creative destruction," where technology, innovation and
trade destroy some jobs while creating others. While the process works
hardships on some people, any attempt to impede the process will make
all of us worse off.