THE BLOG
11/04/2016 10:46 am ET Updated Nov 05, 2017

The Rabble Understands Trade Pretty Well

Bloomberg via Getty Images

There is no issue that has done more to fuel the unexpected success of anti-establishment candidates on the left and the right this year -- Bernie Sanders and Donald Trump -- than international trade.

There is no issue about which establishment economic policy elites feel more certainty than trade.

There is no issue about which elites feel more entitled to act on supposedly neutral, antiseptic technocratic analysis without the intrusion of tawdry politics than trade.

And there is no issue that has done more to undermine the credibility and legitimacy of elites, political insiders, in the eyes of ordinary Americans, people trying to make an honest living, than trade.

If one country can produce goods better or more cheaply than another can produce the same goods, elites argue, then the second country should find something else to do that they're good at and everyone will be better off. The argument dates back two centuries to David Ricardo, an economist before there really was such a thing. Ricardo's term was "comparative advantage." Unrestricted trade might create winners and losers at first, but the losses would be temporary. Advanced economies like ours would efficiently shift away from lower-skilled industries that were better suited to less advanced economies. The economy would grow in every country, consumers would get better and cheaper goods, and workers who lost jobs could find new jobs in industries that increased exports since more jobs would be created than lost. The prosperity that resulted would make it possible to smooth any bumps in the transition.

According to elites, anyone who opposes international trade deals just does not understand comparative advantage or is motivated by xenophobia or some other dark impulse. Politicians who oppose the deals are of limited intellect or pander to the ignorance and prejudices of the rabble.

When the Trans-Pacific Partnership (TPP) was signed earlier this year, there was enthusiastic support from policy elites. Jason Furman, the incumbent chair of the Council of Economic Advisors, explained comparative advantage to urge support for the trade agreement.

Roger Lowenstein, a financial journalist perhaps best known for proclaiming Wall Street innocent of criminal conduct in the financial crisis, wrote "Two hundred years ago, David Ricardo explained why foreign trade was beneficial; today's trade deal opponents ignore him at their peril." Lowenstein said he hoped that before the vote on the agreement, members of Congress "will devote 10 minutes to learning about [Ricardo]."

Gregory Mankiw, chair of the Council of Economic Advisors under President George W. Bush, was equally patronizing. "If Congress were to take an exam in Economics 101," he asked, "would it pass?" Among economists, Mankiw said, "the issue is a no brainer."

Have any of them ever met workers who lost their jobs because a factory closed? I could introduce them to some. I represented a lot of them in Congress.

I entered Congress at the beginning of 2003 to represent a new North Carolina district gained after the 2000 census. About half of the district was Wake County, which included Raleigh, where I lived. I had represented Wake County in the state senate for six years. Wake County was part of the Research Triangle. The Triangle prides itself in having one of the highest percentages of residents with doctorates of any region in the country. The Triangle was and is growing, prosperous and increasingly Democratic.

The politics of redistricting is complicated. A compact, relatively homogenous, prosperous, well-educated district in Wake County, my political base, was entirely possible and seemed logical, but instead the district took a piece of Wake County and went west along the Virginia border through rural and small town North Carolina. The district included Eden, a town of about 15,000 right on the border, a two-hour drive from Raleigh.

The economy of Eden was for about a century largely based on textiles. At the end of the nineteenth century, the textile industry picked up and moved from New England to the South so they could pay lower wages. In 1912, Marshall Field bought six mills in and around Eden and called the new company Fieldcrest Mills. The company mostly manufactured bedding and bath products such as sheets, towels and blankets. The company grew to employ more than 3000 workers in the area.

Fieldcrest Mills acquired Cannon Manufacturing in the eighties and became Fieldcrest Cannon, and then Pillowtex bought Fieldcrest Cannon in the nineties. By then, textile manufacturers had begun to move factories to other countries, again so they could pay lower wages. Pillowtex's largest customer, Wal-Mart, demanded that the company move manufacturing to reduce labor costs, but Pillowtex refused. Pillowtex lost Wal-Mart's business and more and more market share to cheaper goods. The company began to shed jobs.

Pillowtex went briefly into reorganization bankruptcy and on July 30, 2003 closed for good. Most of the news coverage was about Kannapolis, North Carolina, where 4,320 workers lost their jobs on one day. But the last 495 workers in the Eden plants, which were still called Fieldcrest, also lost their jobs.

The governor's office had "rapid response teams" for factory closings, and my congressional office was part of the team for Eden, mostly to help workers apply for whatever federal assistance was available. I went to Eden to support my staff and to show my concern for the workers who had lost their jobs. And I might get my picture in the local paper since I was still the new congressman.

The local union, the Union of Needle Trade Industrial and Textile Employees (UNITE), invited me to come to their union hall to meet some of the workers who had lost their jobs. The workers I met were mostly middle-aged. More hadn't finished high school than had started college. Some were white and some were African-American. They were still years away from Social Security or Medicare benefits. And they had no idea where they would find another job.

I said that the Trade Adjustment Assistance would help them go to the community college to learn new skills, but they said that there were no jobs for them nearby whatever their skills. Fieldcrest workers who had lost their jobs in earlier layoffs were also looking, and other textile factories in the area had also shed jobs and appeared in danger of closing. A job in the Triangle in the pharmaceutical industry, one of the big winners from international trade, was not a realistic possibility.

I talked with one couple in their fifties who had both had health problems. He'd had heart bypass surgery and she'd had cancer, or maybe it was the other way around. They both had high blood pressure and were on lots of medication for one thing or another. They lost their health insurance when they lost their jobs. They were entitled to buy continued coverage from their old insurer under the law at the time, but the premiums were obviously unaffordable on their income, which was not enough to live on as it was. They would have to do without and hope for the best.

The workers all thought that they'd lost their jobs because of trade deals that let companies move factories to other countries where they could pay workers less. In truth, it would have been hard to protect their jobs in the long run without protective tariffs that might have started a full-fledged trade war.

But I did not explain comparative advantage or tell them to read Ricardo.

My office did everything we could to help those workers and they appreciated it. Over the years I did a ton of retail politics in Rockingham County, which included Eden. I visited factories and stood at the gate at shift change, I introduced myself from table to table at restaurants, I toured schools and gave an apple to every teacher (it sounds corny, but they loved it), I attended church services, I gave flags flown over the Capitol to new Eagle Scouts, I went to Friday night high school football games (Reidsville High School's team was a power), I went to street fairs, I had lunch with the Rotary Club, and on and on. And I might have been a Raleigh lawyer, but I have a Southern accent that I came by honestly.

By 2010, the last time I ran for Congress, probably more Rockingham County voters had met me than had met some of their county commissioners. The county had been strongly Democratic in the past, and in the more progressive wing of the Party, largely because it had been the most unionized county in the state. I had always carried the county.

But by 2010, the county's politics was dominated by a homegrown version of the Tea Party called "Will of the People." A local Democrat told me that many of the members had been Fieldcrest workers. I carried Wake County handily and won overall, but I got killed in Rockingham County. Down ballot Democrats in Rockingham County did worse. It hasn't gotten better since. Hillary Clinton may carry North Carolina, but it will be with votes from Raleigh, not from Rockingham County.

There is no blinking that much of the anger on the right in the last eight years is the result of discomfort, and much worse, with our first African-American president. It was always wildly unrealistic to think that President Obama's election meant that we had become a post-racial society. And there will be discomfort, and much worse, with our first woman president.

But much of the anger in 2010 and now is that ordinary Americans think that political insiders have no clue what their lives are like and don't much care.

As attracted as economists and policy elites are to the symmetry of the theory of comparative advantage, research on the effect of trade is mixed at best. The effect of the North American Free Trade Agreement (NAFTA), the 1994 trade agreement with Mexico and Canada, on the overall economy has been relatively small--a rounding error in the GDP--but according to one estimate there has been a net loss of 700,000 American jobs to Mexico through 2011. The job losses were concentrated in certain communities, and the "displaced workers" did not readily find new jobs because the workers lived in the wrong place and had the wrong skills, just as the Fieldcrest workers said.

The savings to consumers from cheaper goods have been negligible.

In 2000, the United States granted "permanent normal trade relations" status with China, which guaranteed low tariffs. The effect of trade with China has been much larger. Economists estimate that Chinese imports have cost 2 to 2.4 million American jobs and resulted in a rapid decline in manufacturing employment in the United States. The regions that lost the most manufacturing jobs did not see an increase in jobs tied to exports. Even workers who kept their jobs in the affected regions were under wage pressure because of competition for jobs from displaced workers and because of the wage competition from foreign workers.

The negative effects of trade were greatest on workers who had not gone to college, who were already the least prosperous. The positive effects were on corporate profits, either from exports or from reduced labor costs for goods sold in the United States, which benefited top executives and shareholders, who were already the most prosperous.

So trade increased inequality. The rabble may not have read Ricardo or studied the theory of comparative advantage, but they appear to understand the effect of unrestricted trade pretty well.