Economist: “U.S.-China trade is almost a one-way street.”

February 15, 2013

In the face of persistent, enormous, destabilizing global trade imbalances that grow worse with each passing year, is it possible that economists are beginning to acknowledge what seems obvious to everyone else – that maybe free trade doesn’t necessarily benefit both parties?  That’s what Chrystia Freeland, Reuters editor, reports in the above-linked article. 

Ms. Freeland recounts her interview with David Autor, an MIT economist and reports on the work he has done with two colleagues:  David Dorn of Harvard and Gordon Hanson of the U. of  California.  The trio of economists comes right out and admits that trade with China has cost America manufacturing jobs – lots of them.  These economists evaluated the effects of two factors on the economy – technology and trade.  They found that while technology tends to push jobs to the upper and lower ends of the spectrum, it has no impact on overall employment.  However, they found a big impact from trade:

The big surprise, at least for believers (like me) in the classic liberal economic view that trade benefits both parties, is the strong and negative impact of globalization on U.S. workers — Autor estimates it accounts for 15 to 20 percent of jobs lost.

… What is striking, and frightening, is the extent to which, at least in the U.S.-China trade relationship, the knee-jerk, populist fears intellectuals tend to deride actually turned out to be true.

“U.S.-China trade is almost a one-way street. This trade relationship doesn’t clearly give you the benefit that you can sell a lot of stuff to your trade partner,” Dorn said. “If you talk to someone who is somehow involved in the promotion of free trade, they may say that maybe the headquarters of Apple (AAPL.O) benefits. That may be true. But the first-order effect is of job loss.”

In Five Short Blasts, I wrote of a divergence of interests that takes place once a “critical” population density is breached – that point at which overcrowding begins to erode per capita consumption.  It’s in the best interest of corporations to continue to benefit from the growth in total volume that accompanies population growth, while it’s not in the best interest of those suffering the effects of diminished ability to use (and thus manufacture) products.  These economists recognize this divergence of interests:

What is challenging about both of these trends, and what makes the hollowing out of the middle class a political problem as well as an economic one, is how different they look depending on whether you own a company or work for one.

Ms. Freeland concludes with this:

Capitalism and democracy are at cross-purposes, and no one yet has a clear plan for reconciling them.

Among the cracks developing in globalization, this is a big one – when the field of economics begins to doubt the basic premises upon which it was built.  I’ve been saying for a long time that there are no solutions to be found among politicians.  It makes absolutely no difference which party, Democrat or Republican, has their hand on the helm of the economy when both take their advice from economists who, while tilting slightly left or right, adhere to the same basic principles, especially when it comes to free trade.  Nothing will change until the field of economics changes.  Perhaps that’s beginning to happen.