• Daniel Griswold, Mad About Trade: Why Main Street America Should Embrace Globalization, Washington: Cato Institute, 2009, 208 pages, $21.95
Trade is great for consumers and producers. It gives us more choices, lower prices, and better quality goods than we would otherwise have. It helps the country weather economic storms, improves foreign markets for our goods, makes the world safer, does more for the poor than foreign aid, reduces illegal immigration, has little net effect on employment, and gets a bad rap for other problems that it does not cause. Protectionism, by contrast, is a swindle and “a conspiracy against the public.”
Such are the conclusions Daniel Griswold, director of the Center for Trade Policies at the Cato Institute, reaches as he makes the case for free trade. He marshals an impressive amount of data in a relatively short space. The data are, if anything, more surprising than the conclusions.
The U.S. middle class is indeed shrinking, but so is the percentage of Americans with low incomes. Even so, the proportion of American households earning $75,000 or more, adjusted for inflation, grew from 25.6 percent in 1990 to 32.1 percent in 2007. Household incomes have grown despite the increasing share of compensation that has gone to non-monetary benefits, NAFTA, and China’s entry into the World Trade Organization.
Looking back further, America’s growth in the late 1800s came in spite of trade barriers, not because of them. Immigration and population growth drove the American economy.
“From 1854 to 1944, the U.S. economy suffered 21 recessions averaging 21 months in length,” Griswold writes. “During that era, despite tremendous growth, the U.S. economy was contracting 41 percent of the time. … According to the National Bureau of Economic Research, our nation suffered through nine recessions totaling 96 months in length between 1945 and 1985, representing 20 percent of the time. Since then … our economy has been in recession about 12 percent of the time. Like a superior investment, our more globalized economy has delivered growth rates at least as good as past protectionist eras but with less volatility.”
And yet America is still not as open to trade as it could be, ranking behind 26 other countries. The trade barriers that remain have hurt poor and middle class Americans, who face higher prices for food, basic clothing, shoes, and other low-price essentials. Someone earning $15,000 a year pays a week’s worth of salary for tariffs, while someone earning $100,000 pays just two or three hours’ worth of salary. Tariffs impose the equivalent of a $155 food tax on Americans, according to international statistics.
America is losing some jobs, Griswold writes, but trade is not the culprit. Job losses result from emerging technologies, new companies, and a changing economy. Also, those jobs being lost often offer lower wages than the new jobs being created in service sectors. Between 1991 and 2008, America lost 3,613 manufacturing jobs with an average hourly wage in 2008 of $17.72. Over the same period, it gained 18,895 jobs in service sectors with an average wage of $20.52 and another 9,681 jobs in service sectors with an average wage of $14.54.
Griswold adds, “America’s share of the world’s manufacturing value added has remained steady at about 21 percent since the early 1990s.”
Griswold finds that employment in the U.S. grows when American companies employ more people abroad, overseas investments have generated more overseas sales, and the trade deficit grows when unemployment falls. Foreign investments in government bonds have reduced interest rates by 0.9 percentage points, allowing Americans to borrow for less, despite government deficits.
Griswold’s final recommendation: National leaders should extol the benefits of competition from imports. Free trade is a matter of good economics, justice, fairness, and social equity, he concludes. After reading his book and examining the data, you may find it harder to disagree.