Economics

Cómo proteger a los trabajadores sin aranceles comerciales

Jul 17, 2018 Robert J. Shiller

NEW HAVEN – Según un sondeo de norteamericanos realizado por Washington Post/Schar School y publicado el 11 de julio, sólo el 39% de los participantes aprobaba la imposición de aranceles a países extranjeros por parte del presidente norteamericano, Donald Trump, mientras que el 56% estaba en contra. Pero, si bien son buenas noticias que una mayoría de los norteamericanos se oponga a su presidente sobre esta cuestión clave, Trump sigue adelante, con la idea, aparentemente, de que a la población le gustarán más los aranceles cuando estén vigentes.

Es una incógnita por qué, inclusive, el 39% respalda estas políticas. Desde la Gran Depresión y la Segunda Guerra Mundial, y el Acuerdo General sobre Aranceles Aduaneros y Comercio de 1947, Estados Unidos -tanto su gobierno como su población- ha estado honestamente a favor del libre comercio.

En su libro La riqueza de las naciones de 1776, Adam Smith ofreció un argumento elocuente y convincente a favor del libre comercio, y no de un comercio distorsionado por aranceles. Con el libre comercio, la economía prospera porque los bienes y servicios se obtienen en países con una industria más productiva.

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0 Comments on this paragraph, 37 Comments on this article

Ashish Borar Aug 19, 2018

The jobs lost to globalization are fairly permanent unless there are some sort of subsidies are provided to local units or anti-dumping duties are imposed on imports. Subsidies unnecessarily burden the fiscal discipline for the long term. Please also consider the societal impacts when people are jobless and survive on insurance.

You want the government to provide wage insurance and face shutdowns every now and then? a) loss of revenue from customs; b) jobless people and law & order problem; c) subsidies to local units and burdening already highly indebted government; d) indirectly promote countries like China which won't let companies US companies like Google & Facebook survive in Chinese homeland.

There are fundamental flaws in your arguments.

It's high time that trade manipulators like China are forced to negotiate.
A new reply to this comment has been posted.
Peter Schaeffer Aug 1, 2018

"Obama wanted to see such assistance, which began with the Trade Expansion Act of 1962, expanded further, by creating wage insurance. But even this modest proposal was not enacted."

The Democrats controlled the White House, the Senate, and the House after the 2008 elections. They could pass any law they wanted to. "Wage insurance" wasn't exactly a priority. "Free trade" was. After all, why would the Democrats want to help "bitter people" and "deplorables"?
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Peter Schaeffer Jul 31, 2018

Any number of papers have been published showing that "free trade" with China has been a disaster for the U.S. A good question might be why 56% of Americans are in denial. See below.

“The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade
David H. Autor, David Dorn, Gordon H. Hanson”
http://www.nber.org/papers/w21906

“China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.”

“Americans once worked here - Free Trade With China Wasn't Such a Great Idea for the U.S.”
http://www.bloombergview.com/articles/2016-01-26/free-trade-with-china-wasn-t-such-a-great-idea

“In his recent book "Economics Rules," Harvard economist Dani Rodrik laments how economists often portray a public consensus while disagreeing strongly in private. In effect, economists behave like scientists behind closed doors, but as preachers when dealing with the public.

Nowhere is this evangelism clearer than on the issue of trade. Ask any economist what issue they agree on, and the first answer you’re likely to hear is “free trade is good.” The general public disagrees vehemently, but economists are almost unanimous on this point.

But look at actual economics research, and you will find a very different picture. The most recent example is a paper by celebrated labor economists David Autor, David Dorn and Gordon Hanson, titled “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.” The study shows that increased trade with China caused severe and permanent harm to many American workers:”

From “Free Trade With China Wasn't Such a Great Idea for the U.S.”
https://www.bloomberg.com/view/articles/2016-01-26/free-trade-with-china-wasn-t-such-a-great-idea

“But this is only part of the problem. Economists are also stubbornly unwilling to question their benchmark theories, even when the evidence presents a challenge to these theories. The fact that Autor et al. find total national employment declining in response to trade with China should be cause for concern. Standard trade models, especially the simple ones taught in Econ 101, predict that this shouldn’t have happened. Autor et al. sternly rebuke the economics profession for relying too much on theory, and not enough on evidence, when it comes to the issue of trade:

We argue that having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the economics literature to more convincingly estimate gains from trade, such that the case for free trade is not based on theory alone, but on a foundation of evidence.

The authors suggest that real-world economies may simply be much worse at adjusting to big changes than most economic models assume. It is expensive and time-consuming for workers to train for new jobs and to move to new locations. It also takes time and money for businesses to figure out how to change their business models in response to the new landscape presented by a global economy with China in it. These adjustment costs might overwhelm the gains from trade.”

Trade Liberalization and Mortality: Evidence from U.S. Counties
http://www.nber.org/papers/w22849

“We investigate the impact of a large economic shock on mortality. We find that counties more exposed to a plausibly exogenous trade liberalization exhibit higher rates of suicide and related causes of death, concentrated among whites, especially white males. These trends are consistent with our finding that more-exposed counties experience relative declines in manufacturing employment, a sector in which whites and males are disproportionately employed. We also examine other causes of death that might be related to labor market disruption and find both positive and negative relationships. More-exposed counties, for example, exhibit lower rates of fatal heart attacks.”

Foreign Competition and Domestic Innovation: Evidence from U.S. Patents
http://www.nber.org/papers/w22879

“The competitive shock to the U.S. manufacturing sector spurred by rising China import competition could either catalyze or stifle innovation. Using three distinct sources of variation to identify rising trade exposure, we provide a causal analysis of the effect of surging import competition on U.S. innovative activities. Applying a novel internet-based matching algorithm to map all U.S. utility patents granted by 2013 to firm-level data, and carefully accounting for the shifting concentration of patenting activity across sectors, we document a robust, negative impact of rising Chinese competition on firm-level and technology class-level patent production. Accompanying this fall in innovation, global employment, sales, profitability, and R&D expenditure all decline within trade-exposed firms. The trade-induced contraction along all margins of adjustment and for all measures of valuation suggest that the primary response of firms to greater import competition is to scale back their global operations.”

Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=765564

“Retail chains and imports from developing countries have grown sharply over the past 25 years. Wal-Mart's chain, which currently accounts for 10% of U.S. imports from China, grew 10-fold and its sales 90-fold over this period, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. This mechanism can explain why a surge in U.S. imports followed relatively modest tariff declines and why Wal-Mart abandoned its Buy American campaign in the 1990s. Also consistent with these facts, we show that tariff reductions have a greater effect the more advanced the retailer's technology. The model has implications for the pace of the product cycle and sheds light on the recent apparent acceleration in foreign outsourcing.”
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Peter Schaeffer Jul 31, 2018

In the United States, programs such as "Trade Adjustment Assistance" are called "burial insurance" because of how little good they do. The truth is that the United States rose to great prosperity behind high tariff barriers and has declined under "free trade". Of course, the "New Cosmopolitans" (check who wrote that essay) have prospered enormously from "free trade". The American people have not.

The reality of "free trade" is gigantic trade deficits and national decline. Don't believe me. Let me offer a few quotes.

From Abraham Lincoln

"Give us a protective tariff and we will have the greatest nation on earth"

From Teddy Roosevelt.

“Thank God I am not a free trader”

and

“pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber”
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Alex Aslanidis Jul 24, 2018

"Another solution is to have the government encourage private livelihood insurance by subsidizing it to help cover the cost of jobs lost because of foreign trade."

What a daft idea.

So, the countries that have suffered because of free trade and capital flows, in other words the deficit countries, are gonna increase the fiscal deficit to subsidize insurance companies to come up with schemes against the adverse effects of free-trade?

Isn't that counterproductive, and opening the door for attacks against the currency?

Isn't it easier just implementing a scheme in order to have balanced trade and controlled capital flows? Why do we need to reinvent the wheel?
A new reply to this comment has been posted.
wolfgang price Jul 23, 2018

How did economics reach the (perverted) insight that noting having a job is an indignity? That assuring those governed that their meals are secure required some economic principle? There is no end of reposeful work for the able...and it is not 'jobs' that industry chooses to fill as its products and services require. More than 50 million perform volunteer work. Darn essential work. Work that cements the social structure. Look at what 'jobs' are doing for the dignity of the individual. A vast population suffering from mental illness. An other suffering from obesity and diabetes. And yet another, millions of youths addicted to gaming and adults to on-line gambling. ALL provide jobs for industry and healthcare.

Whether trade, or robots, let us rid ourselves of the notion that only industry, and market trade, determine the existence of man in an era of vast surpluses.
A new reply to this comment has been posted.
Sergio Paradiz Jul 23, 2018

Robert Shiller’s article implies free trade is the single reason for the Job loss experienced in the US as well as in Europe. The jobs moved from developed to developing economies will not be brought back by tariff barriers. But this populist policy does not stick to job loss from robotics and AI, for which there is no apparent “quick fix” . This is arguably the most relevant and difficult challenge government in developed countries face today. And it needs to be addressed holistically . Because the answer doesn’t rest on education and new skills as some suggest. With globalization, robotics and AI , developed countries economies will not generate the number of jobs to keep “full employment” no matter how highly skilled and educated job seekers become. Radical solutions ( not even though of today ) are needed, because none of “traditional “ medicines will suffice. UBI is one. Reducing working hours another. But one thing has to be taken for granted: - whichever the policy, it will have to be financed by taxes. And those taxes will be paid by businesses and individuals who most profit from the new production paradigm.
- Alex Aslanidis Jul 24, 2018
  
  Robotics and AI aren't a problem.
  
  First, they really aren't a problem since the process is still in it's beginning stages. It's just a convenient myth to reproduce in order to justify what really affects deficit-biased economies, namely free trade and capital flows.
  
  Secondly, provided trade and capital flows are balanced, robotics and AI genuinely pose no problem. The government can simply increase spending in order to replace the affected professions with other ones, presumably in services. I repeat, the prerequisite for this to work is balanced trade and capital flows, otherwise the "printing press" will fail (it will lead to higher trade deficits, bigger inflation, bigger currency debasement and so on).
  - Sergio Paradiz Jul 24, 2018
    
    The myth:
    “A new study by the McKinsey Global Institute estimates that between 400 million and 800 million of today’s jobs will be automated by 2030.
    
    The research adds fresh perspective to what is becoming an increasingly concerning picture of the future employment landscape. “We’re all going to have to change and learn how to do new things over time,” institute partner Michael Chui told Bloomberg”
    The miracle:
    “provided trade and capital flows are balanced, robotics and AI genuinely pose no problem.”
    How does one PROVIDE balanced capital and trade flows ? Is there a supernatural power to impose the balance or do we go back to Soviet five year plan and closed borders?
    Reality , over time, is the best antidote for populism.
    A new reply to this comment has been posted.
  - Sergio Paradiz Jul 24, 2018
    
    The myth:
    “A new study by the McKinsey Global Institute estimates that between 400 million and 800 million of today’s jobs will be automated by 2030.
    
    The research adds fresh perspective to what is becoming an increasingly concerning picture of the future employment landscape. “We’re all going to have to change and learn how to do new things over time,” institute partner Michael Chui told Bloomberg”
    The miracle:
    “provided trade and capital flows are balanced, robotics and AI genuinely pose no problem.”
    How does one PROVIDE balanced capital and trade flows ? Is there a supernatural power to impose the balance or do we go back to Soviet five year plan and closed borders?
    Reality , over time, is the best antidote for populism.
    A new reply to this comment has been posted.
  - Sergio Paradiz Jul 24, 2018
    
    The myth:
    “A new study by the McKinsey Global Institute estimates that between 400 million and 800 million of today’s jobs will be automated by 2030.
    
    The research adds fresh perspective to what is becoming an increasingly concerning picture of the future employment landscape. “We’re all going to have to change and learn how to do new things over time,” institute partner Michael Chui told Bloomberg”
    The miracle:
    “provided trade and capital flows are balanced, robotics and AI genuinely pose no problem.”
    How does one PROVIDE balanced capital and trade flows ? Is there a supernatural power to impose the balance or do we go back to Soviet five year plan and closed borders?
    Reality , over time, is the best antidote for populism.
    A new reply to this comment has been posted.
  - Sergio Paradiz Jul 24, 2018
    
    The myth:
    “A new study by the McKinsey Global Institute estimates that between 400 million and 800 million of today’s jobs will be automated by 2030.
    
    The research adds fresh perspective to what is becoming an increasingly concerning picture of the future employment landscape. “We’re all going to have to change and learn how to do new things over time,” institute partner Michael Chui told Bloomberg”
    The miracle:
    “provided trade and capital flows are balanced, robotics and AI genuinely pose no problem.”
    How does one PROVIDE balanced capital and trade flows ? Is there a supernatural power to impose the balance or do we go back to Soviet five year plan and closed borders?
    Reality , over time, is the best antidote for populism.
    A new reply to this comment has been posted.
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Raja Rajamani Jul 22, 2018

Adam Smith and Ricardo did not know of a resurgent Asia post 1945. Starting with Japan, then Asian Tigers & Korea, and now China, these have followed a successful failproof policy of economic progress at the cost of USA initially, and now with China, the whole world. What do you do when Chinese made fabrics, copied from thousands year old tradition in Nigeria, is better and longer lasting than the locally grown ones. The local Nigerians, unlike the above quoted Japanese or French housewife, will go for the cheaper, better product from China. At the cost of livelihood to entire communities. Dussera Navratri dolls made in Thanjavur, are now replaced by 'Made in China' dolls in South India now. The entire fireworks industry of Sivakasi in Tamil Nadu have been shut down, thanks to China. There is no place else to go for these communities. As it was for the US Midwest. So what comes next? If USA is any model, it is destruction of families and rule by drug lords and gangs. Again thanks to cheap synthetic drugs made in China (where else?)
A new reply to this comment has been posted.
KJM Clark Jul 22, 2018

This is excellent - except that we know the GOP will never allow it. Since they're cementing their long-term power through stacking the Supreme Court and gerrymandering, this will not happen in the next 20-40 years. So, since this isn't possible, what could we do that doesn't involve redistribution? Pretending we have options, that we don't, is not helpful. (It's like pointing out how wonderful a carbon tax would be - it would be terrific, but it isn't going to happen any time soon either.)
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Jose araujo Jul 18, 2018

Any evidence that private companies are better at managing risks than governments, or government owned companies?

Why would the market be efficient clearing this kind of risks?
A new reply to this comment has been posted.
Chandrashekar Tamirisa Jul 18, 2018

Free trade has become an economic dogma centered on Ricardo's comparative advantage. We need a paradigm shift in economics to ensure that workers in developed countries are protected and development of the rest of the world are, at once, both possible and feasible. This article does not provide a solution.
A new reply to this comment has been posted.
Bernhard Kopp Jul 18, 2018

Globalization changed business models and supply chains, but it insufficiently changed the models of taxation. People who loose their jobs, and cannot find another one, cannot pay taxes, nor any kind of health care or social security contribution. Communities and states who loose parts of their tax base from businesses and private individuals cannot spend on infrastructure, education or social services. Hence, those who directly benefit from globalization must be taxed in some way to compensate for the losses elsewhere. It may be income from investments or even international transportation. Airports, seaports and transportation infrastructure is not predominantly paid for by the benefactors of trade. There is certainly no perfect formula, but major benefactors of cheap imports, low and high tech, have become insanely big and rich only due to insufficient models of taxation. The rust belt and the fly-over states have been revolting at the polls, and will continue to do so.
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Robert Merrifield Jul 18, 2018

Money is just one benefit that work brings. Money alone cannot replace the loss of purpose, self-identity, community and worth that working provides.

It is precisely the failure of economists to incorporate the human elements in their modelling that leads us to fail. Adam Smith wrote in an age when slavery was still normal and workers rights of no consequence. They had no vote. While human wealth is increased by free trade the tragedy of post war liberalism is the failure to recognise that the benefits are not spread equally.

While the West was united in recovery and preventing the spread of communism it was easier to persuade workers of the need or inevitability of losing their jobs to sponsor political goals in foreign lands.

Politicians first duty is to the people they represent, not to globalisation. Perot was right when he spoke about the sucking sound of jobs going south when NAFTA was approved. It accelerated an inevitable process of change and destroyed people's lives.

Adam Smith might be right in the longer term but lets not forget that is made up of many, many short terms. During which even he might suggest a better short term approach.
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Yoshimichi Moriyama Jul 18, 2018

A French woman said, "I will buy French farmers' pork, no matter if I have to pay extra."
A Japanese government has the right to protect or liberalize Japanese rice production, even if protection should mean that consumers would have to pay an exorbitant thousand dollars for a kilogram of rice. In the 1980s the United States said that Japanese market was closed, but the fact was that it was as free or in other words as closed as any industrilized nation's.
Free trade is the magic word that makes you unable to see the reality; the United States government insisted, lobbied by Wall Street, that Japan should completely liberalize its finacial transactions; (the reality was that Wall Street had an avarious eye on high savings of the Japanese. Now Japanese workers are proportionately less paid and company executives and shareholders far more, with the result of very big income and wealth gap.)
Thailand had been asked to do the same before the Asian economic crisis of 1997; Wall Street got away with a lot of money and profit; even Thai peasants, who seemed to live as far away from Bangkok as if shielded off from international financial mishap, were hit and had to send their daughters into pleasure quarters of the capital city.

"Whatever the source of the problem in financial markets, it wasn't lack competition or market liquidity. By 2007, the daily volume of foreign currency transactions had risen to $3.2 trillion, orders of magnitude larger than the volume of trade (with a daily average of $38 trillion in the same year.) Finance had swamped the real economy (Dani Rodrik, The Globalization Paradox.)"

I do not like Chinese politics; I do not like the way the CCP controls society and people; but the CCP takes care that, while gaining a lot of benefit from free trade, domestic liberalization should not harm or impair its governance; it takes care and adopt measuers that part or any of its national wealth will not seep out of the country.
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Kien Choong Jul 18, 2018

One reason why I find a universal basic income attractive is that it doesn't come across as "charity", but an entitlement. I would replace social security with a universal basic income, include the UBS payment as taxable income, and apply a special UBS surcharge on taxable income to ensure that the UBS payment is targeted.
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David Garland Jul 17, 2018

Folks who read Adam Smith, and then wonder why free trade is an issue should also read The Ones Who Walk Away from Omelas.

No one wants to be the loser. The bigger question is: do winners and losers exist because they have to or because we invented it?

Not saying I condone or condemn either viewpoint, just that both exist.
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John Sweeney Jul 17, 2018

I've often mulled requiring departing companies to "buy out" their works with an annuity equivalent to their prospective lifetime earnings.Of course,now, it's too late. The moving of jobs has long since been completed. But, it is a thought for current moves.
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Gunnar Eriksson Jul 17, 2018

The owners of traditional manufacturing in the US has prioritized buy-backs and dividend above investment in effectiveness and product enhancement resulting in trade deficit and lost jobs.
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Robert Goldschmidt Jul 17, 2018

The most important ingredient needed to restore working family economics is competition. In fact the Merriam Webster definition of Capitalism includes competition. During our golden economic period from 1948 to 1972, competition held corporate profits to 5% of sales, If one assumes a constant profit margin, then any change in payroll will be reflected in a corresponding equal change in the price of goods produced. This means that the purchasing power of workers is preserved during a period of automation which reduces payroll. This is exactly what transpired during this period

Starting in 1973, we allowed mergers and acquisitions to grow, forming regional and national monopolies which restricted competition. That is when worker compensation stopped tracking productivity until today when corporate profit margins have swollen to 11% of sales, For payrolls to be restored to the same share of our economy as in 1972, today's workers would need a pay increase of $10,000 per year for every full time employee.

With regard to off-shoring, with competition, all of the savings would still show up as a reduction in price of goods produced, thus shielding workers from at least half of the impact to their purchasing power. We should remember however, that most of the impact on workers since 1972 is attributable to loss of competition, not off-shoring.
- Robert Goldschmidt Jul 17, 2018
  
  Note also, that in a competitive environment, there is less inducement to off-shore. If you do so, you will have a short term advantage until your competitors off shore as well, after which your earnings will actually end up lower than where you started!
  - jagroup Jul 18, 2018
    
    Way too late - the competition for domestic business IS unfettered offshore and in control of majority of market share. It can undercut or simply wait out any single local competitor. In a global economy the local business can only think short-term in order to survive-the race to the bottom that is the inevitable result.
    
    In retail look at any ‘high street’ or mall- how many truly domestic store fronts can you find? Ditto the myriad domestic industries that once supplied them-a few went global and survived- the majority are long gone. But who in our globalised housing market can survive on a retail wage?
    
    In 1986, as import restrictions were disappearing, our fledgling Canadian fashion business -along with many others-abandoned Canadian garment manufacturers in favour of cheap offshore suppliers- there was no choice-and in 5 years the Canadian garment industry was dead. Now there are only mainly niche market manufacture and retail that are Canadian owned, with a very few exceptions surviving.
    
    Many Canadians can no longer afford to buy their own fish, high quality apples forest products and so much more. And can Americans afford to buy their home-grown cotton, or anything that isn’t highly subsidized by taxpayers? The benefits of globalised markets accrue to an ever tinier group of global elite from which even the ‘wealthy’ financially resident are dropping like flies. Not many years ago almost everyone could at least afford a healthy diet from home grown foods. Now they can only afford highly subsidized McFoods from globalised monopolies. Citizens of most global supply dependent countries are questioning how much better life is now with all this abundance of cheap crap than when they were ‘poorer’ and made a living in locally-owned business and industry and could afford it’s products. So why is anybody surprised that the glow is off free trade?
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