"Free trade," wrote the British statesman and historian Thomas Macauley, "one of the greatest blessings which a government can confer on a people, is in almost every country unpopular."
The North American Free Trade Agreement (NAFTA) which became effective in 1994 was one of the most bitterly fought battles I can remember. It has been a tremendous success producing great economic benefits to the U.S., Canada and Mexico but the critics remain critical, and not just because people find it hard to admit they were wrong. The Asian invasion that ensued not long after, eradicating millions of manufacturing jobs, reinforced the opinion of many that international commerce is a rigged game that the U.S. is destined to lose.
There can be no question that free trade creates winners and losers and that manufacturing in particular is especially vulnerable to foreign competition. Beginning in this century, the Asian invasion led by China had a devastating impact on many sectors of manufacturing, especially those built upon low skill labor. We simply cannot compete with nations where worker compensation is a fraction of what it is here. We lost almost 6 million jobs that were once a gateway for marginal income workers into the middle class. We are still suffering the aftereffects of that trauma.
But the hard cold fact is that those jobs were destined for oblivion anyway. There is simply no way we can sustain millions of high-paying low skill jobs in a world filled with people desperate for work. The Asian invasion accelerated a difficult transition which would otherwise have stretched out over decades, eroding our economic base as we gradually and painfully made tough decisions to abandon those jobs. It was much better for us to take the inevitable hit that was coming and move on.
But we did not move on to a post-industrial economy as many economists were predicting. Rather, our manufacturing morphed into a dynamic, more productive version of its former self built upon emerging technologies that minimize the need for low skill labor. Today, manufacturing is arguably the strongest and most versatile of our economic sectors.
And it is the manufacturers most actively engaged in foreign trade that provide the best wages and benefits. A new report by business professor Matthew J. Slaughter of Dartmouth concludes that workers at globally engaged companies earn 15-20 percent more than those at purely domestic companies and 25-30 percent more at multinationals. A related report from the Commerce Department says the worker export premium is nearly 20 percent higher for blue collar workers than for white collar workers.
The U.S. is one of the top three exporters -- along with China and Germany -- but our export intensity -- exports as a proportion of our total output -- does not rank us in the top 20. The path to robust economic growth and job creation is clear -- we must continue our commitment to manufacturing innovation and also encourage smaller manufacturers to export.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. October 2014
International Trade
There can be no question that free trade creates winners and losers and that manufacturing in particular is especially vulnerable to foreign competition. But the hard cold fact is that those jobs were destined for oblivion anyway.
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