The recent round of Presidential primaries ripped the scab off the simmering issue of trade and the state of the typical American worker. By substantial margins, voters who participated in exit polls said that trade was hurting American workers more than helping them. Indeed, the anger and anxiety of the voters has a firm grounding in the process of globalization that has now been underway for several decades. In short, while increased economic integration has created substantial benefits for America as a whole, it has also created a large cadre of losers.
Economists broadly agree that increased trade allows countries to specialize in the items that they are best able to produce, resulting in benefits for all concerned. In the case of the United States, estimates of the annual benefit of our trade agreements range from $300 billion to $500 billion, equivalent to $1,000 to $1,500 per year of benefit for every American. Another way to think about it is in terms of jobs — the Business Roundtable estimates that more than 20% of all jobs in America today are tied to trade, roughly double the percentage in 1992. If that seems high, remember that even services like education and health care generate export dollars — when someone comes to the US from elsewhere to be educated or treated.
For those of us not directly involved in export-oriented industries, the best way to see the benefit of trade is in the lower prices we pay for goods that are imported rather than made here. Certainly part of the reason why the prices of electronics have fallen is more efficient manufacturing processes. But the lower prices for items like toys and furniture substantially reflect the benefits of trade.
But while all Americans benefit from lower prices, many jobs have been lost as manufacturing has shifted outside the US. Over the past 15 years, for example, we have lost more than 70% of our textile jobs, many of which were located in southeastern states where Donald Trump did well. As for Michigan, even with the recovery in the automobile industry, we still have about 30% fewer auto jobs than we had in 2000. So when Donald Trump talks about Mondelez moving Oreo production from Chicago to Mexico or Carrier moving air conditioning manufacturing from Indiana to Mexico, he is not wrong.
In addition to lost jobs, wages for those who kept their jobs have been under pressure. From 2009 to 2015, real wages (after adjustment for inflation) rose on average by 2.5%. In service areas like finance and IT, the increases have been more substantial. Even workers in leisure and hospitality — typically low wage jobs — have gotten a pay increase. But those in manufacturing have seen their incomes drop, by nearly 13% for auto workers. In Michigan, average manufacturing wages have dropped from $28 per hour in 2004 to $21 per hour at present (after adjustment for inflation.)
