Setting the Record Straight: Trade Creates Wealth

Great post by Nick DeLong of the Competitive Enterprise Institute Blog.

"In his article “Suffering of Many Continues to Serve the Greed of Others,” Thomas Gibson argues we should convince our politicians to change the “destructive trade laws” that have caused business to locate overseas and as a result have “ravaged communities and families all over our country.” In support of his claim, Thomas list several specific examples where small communities lost a significant number of jobs relative to their total population and notes that more than 42,000 factories have been closed since the U.S. entered into the North American Free Trade Agreement (NAFTA). Furthermore, he cites the authors of Outsourcing America, Ron Hira and Anil Hara, stating that “Outsourcing signals that even hardworking, well-educated and highly skilled American workers may no longer be able to achieve success.”

I beg to differ. While small groups of individuals in specific, labor-intensive sectors across the nation may lose their jobs, the evidence suggests that United States’ trade policies have been had a net positive effect on the nation as a whole. In 2005 dollars, real GDP grew from $8,523.4 billion in 1993 to $13,248.2 billion in 2010. According to the Office of the United States Trade Representative (USTR), total U.S. employment actually increased from 110.8 million to 137.6 million people during the period (1993-2007) following the enactment of NAFTA. Finally, and perhaps most importantly, the new jobs that were created during the early years of the NAFTA agreement weren’t low-paying. In fact, most of the new job creation came in the form of high-wages in high-paying professions. Contrary to Thomas’ claim, it doesn’t look like the “well-educated” and “highly skilled” American citizen is in trouble.

Since the time of Adam Smith, the evidence of the benefits of free trade has been irrefutable. When countries trade, the wealthier nation is exposed to more competition and thus its citizens get the added benefit of a larger variety of products at a lower price. The poorer nation, on the other hand, benefits from the creation of a new industry that once didn’t exist within its borders and its citizens can begin buying essential goods with their new found increase of wealth. Trade is not a zero sum game. Let’s not ask our politicians to end our free trade policies. If we do, a few small groups of people will benefit at the expense of the many."