BUS101: Introduction to Business

Some argue that imports from countries with low wages has put downward pressure on the wages of Americans and therefore we should have trade barriers.

LEARNING OBJECTIVES

Argue in support of trade barriers

KEY TAKEAWAYS

Key Points

• Economy -wide trade creates jobs in industries that have a comparative advantage and destroys jobs in industries that have a comparative disadvantage.
• Trade barriers protect domestic industry and jobs.
• Workers in export industries benefit from trade. Moreover, all workers are consumers and benefit from the expanded market choices and lower prices that trade brings.

Key Terms

• comparative advantage: The concept that a certain good can be produced more efficiently than others due to a number of factors, including productive skills, climate, natural resource availability, and so forth.
• inflation: An increase in the general level of prices or in the cost of living.

It is asserted that trade has created jobs for foreign workers at the expense of American workers. It is more accurate to say that trade both creates and destroys jobs in the economy in line with market forces.

Economy-wide trade creates jobs in industries that have comparative advantage and destroys jobs in industries that have a comparative disadvantage. In the process, the economy's composition of employment changes; but, according to economic theory, there is no net loss of jobs due to trade. Over the course of the last economic expansion, from 1992 to 2000, U.S. imports increased nearly 240%. Over that same period, total employment grew by 22 million jobs, and the unemployment rate fell from 7.5% to 4.0% (the lowest unemployment rate in more than 30 years.). Foreign outsourcing by American firms, which has been the object of much recent attention, is a form of importing and also creates and destroys jobs, leaving the overall level of employment unchanged. There is no denying that with international trade there will be short-run hardship for some, but economists maintain the whole economy's living standard is raised by such exchange. They view these adverse effects as qualitatively the same as those induced by purely domestic disruptions, such as shifting consumer demand or technological change. In that context, economists argue that easing adjustment of those harmed is economically more fruitful than protection given the net economic benefit of trade to the total economy. Many people believe that imports from countries with low wages has put downward pressure on the wages of Americans.

There is no doubt that international trade can have strong effects, good and bad, on the wages of American workers. The plight of the worker adversely affected by imports comes quickly to mind. But it is also true that workers in export industries benefit from trade. Moreover, all workers are consumers and benefit from the expanded market choices and lower prices that trade brings. Yet, concurrent with the large expansion of trade over the past 25 years, real wages (i.e., inflation adjusted wages) of American workers grew more slowly than in the earlier post-war period, and the inequality of wages between the skilled and less skilled worker rose sharply. Was trade the force behind this deteriorating wage performance? Some industries, or at least components of some industries, are vital to national security and possibly may need to be insulated from the vicissitudes of international market forces. This determination needs to be made on a case-by-case basis since the claim is made by some who do not meet national security criteria. Such criteria may also vary from case to case. It is also true that national security could be compromised by the export of certain dual-use products that, while commercial in nature, could also be used to produce products that might confer a military advantage to U.S. adversaries. Controlling such exports is clearly justified from a national security standpoint; but, it does come at the cost of lost export sales and an economic loss to the nation. Minimizing the economic welfare loss from such export controls hinges on a well- focused identification and regular re-evaluation of the subset of goods with significant national security potential that should be subject to control.

Korea International Trade Association: KITA attempts to protect South Korean producers while finding international export markets.