Trade globalization is here to stay

Repps Hudson is an adjunct instructor and freelance journalist who lives in University City.

By Repps Hudson

Several years ago, while covering organized labor for the St. Louis Post-Dispatch, I covered a story about a cookie company in Overland that was closing. Its Italian corporate owner was moving the operation to Ontario.

The story got into the details of the North American Free Trade Agreement (NAFTA) that President Donald Trump campaigned to discard — and now says his administration will renegotiate.

Under the trade pact among the United States, Mexico and Canada, reached in the mid-1990s, workers who lost their jobs because of provisions covered by NAFTA were to be retrained so they could find new jobs. They could attend classes at a community college or be retrained by a labor union so they could resume productive lives.

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The problem was, as I learned by interviewing laid-off workers and their union leaders, they simply wanted their jobs back working at the large-scale cookie bakery.

They didn’t want to be trained to do something else. Many of the workers were middle-age and didn’t want to start over. Their union leaders had — erroneously — promised them they would get back their jobs.

They didn’t. The Italian corporation went into bankruptcy. I don’t think you can buy the cookies around here any longer.

I cite this anecdote because it illustrates in microcosm the vastly complicated world we live in. Nothing about globalization and our world of international trade today is simple. It cannot be reduced to bumper-sticker slogans that do justice to the way in which our highly interconnected world works.

Trump campaigned on tearing up trade agreements. He promised to bring back jobs and revive economic nationalism, a widely discredited idea almost everywhere except in union halls and bars.

In effect, he promised to reverse more than 70 years of global progress – led largely by the United States, the United Kingdom and dominant European Union countries —  toward more integrated economies and, yes, political systems.

The hope of those leaders was clear: They never wanted to return to countries in conflict over high tariffs, competition for scarce resources, and exploited working men and women.  These factors, they believed, could lay the groundwork for more deadly wars.

Better to compete in trade than arms, they thought. 

The reason is simple: For centuries, Europe had been one of the bloodiest theaters in the world, with two world wars and endless ethnic disputes that could grow quickly into a Holocaust against Jews, a slaughter of gypsies and homosexuals, and endless confrontations on religious grounds.

Before the guns fell silent in Europe in May 1945 and in Asia in August 1945, key Western allied leaders met to map out a world that would embrace trade, redevelopment and prosperity for millions.

The basic economic theory they adopted was that trade benefits more citizens because they could use the comparative advantage of countries’ economies, as Adam Smith and David Ricardo outlined in the 18th and 19th centuries, respectively. 

For example, the United States is highly efficient in raising agricultural crops, building commercial jets, developing software and furthering higher education. Germany makes great cars, and photographic and medical equipment. Japan exports high-quality cars and photography gear, while China and Vietnam have lower labor costs and therefore manufacture many goods, from shoes to computers to clothes, more cheaply. 

In theory, each country gains as its workforce moves into areas in which it is more competitive in world markets. The converse, of course, is that citizens in these countries often resist the penetration into their economies of goods and services that are produced more cheaply in other countries.

Thus were born, at the end of World War II, the General Agreement on Tariffs and Trade (GATT), the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (widely known as the World Bank). The GATT has become the World Trade Organization (WTO) and is the international locus for resolving trade disputes among its 164 members.

Trump tapped into a pervasive fear of change and economic stagnation, which our global economy has exacerbated.

But, writes Douglas A. Irwin, an economist at Dartmouth College, in the current issue of Foreign Affairs, “the prospect that import restrictions can help domestic producers is even dimmer than it was in the 1980s. That’s because firms engaged in international trade now form part of intricate global supply chains. About half of all U.S. imports consist of intermediate goods, such as factory equipment, parts and components, and raw materials.”

The irony, of course, is that Trump and his supporters profess to love capitalism, which the economist Joseph Schumpeter called “creative destruction.”

One can argue that a well-functioning global economy is capitalism on a global scale; therefore creative destruction should be the watchword everywhere there is trade. Change is the constant, and preparing for change is endless.

A lot of empirical evidence shows that trade creates the greater good for the greatest number of people. It’s not an exaggeration to say that more people enjoy at a higher living standard today than ever before. Much of that is because of trade.

In his column this week in The Washington Post (wapo.st/2qjYVIm)  Robert J. Samuelson refers to a report from the pro-trade Peterson Institute for International Economics titled “The Payoff in America from Globalization: A Fresh Look with a Focus on Costs to Workers” (online at bit.ly/2r9f4kF).

He writes that the report makes three key points.

First, “trade has contributed substantially to the rise of American living standards since World War II.” That’s about $2.1 trillion a year or 11 percent of the $18.5 trillion U.S. economy in 2016. 

Trade forces Americans to work harder to produce better products for the domestic and export markets. And, Samuelson writes, “Exports create jobs and economies of scale for U.S. firms.”

Second, the study estimates that imports displaced 312,500 jobs a year while the U.S. economy grew by an average of 200,000 jobs a month, or 2.4 million a year. What isn’t clear is what kind of jobs were lost? High-paying air-conditioner and auto workers? What kind were created? Fast-food and cleaning service workers? 

Again, the devil’s in the details.

Third, the Peterson report estimates that since 2003, the benefits of trade across the U.S. economy outweigh costs by about 5-to-1. 

Samuelson predicts: “We can’t roll back globalization’s effects, because the enabling technologies (containerization, fiber-optic cables, air freight and the internet) cannot be repealed. … Protectionist policies by governments would reduce economic growth, because companies will delay new investments if they don’t know where and how they can sell.”

No, we don’t want economic nationalism. We should want to improve the system we have.