Nations Gain When They Trade...But What About Me?

EconTalk Extra
by Amy Willis
David Autor on Trade, China, a... Symposium: David Autor on Trad...

What do we really know from international trade theory, and how does it compare to what we see on the ground? Are all international trading partners created equal? This week, EconTalk host Russ Roberts sat down with MIT's David Autor for a hard-hitting conversation about the impact of trade with China on US labor markets.

We have some "Extra" treats for you later this week, but let's start here with some of the basics of the conversation between Autor and Roberts. Let us know your reactions; we love to hear from you.

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1. What is the "redistributive face of trade"? What has the opening of China taught us about international trade theory, according to Autor?

2. What does it mean for a nation to run a trade deficit? Is running a trade deficit bad? What is the basis of Roberts's and Autor's disagreement about the impact of the US trade deficit with China?

3. By the end of the conversation, Roberts still doesn't seem convinced that China is behind the long-term impact on communities and employment. He says that instead the challenge may be that "we're [the US labor force] not so good at adapting, perhaps, as we once were, for all kinds of reasons." What are some of those reasons? Is Roberts's argument plausible?

4. What policy recommendations does Autor offer to help those displaced workers? To what extent do you agree these suggestions would be effective? What do you think we should do for such workers?

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COMMENTS (9 to date)
Dan writes:

I support remarks by Roberts and Autor regarding helping workers retrain, relocate, and otherwise adjust. If trade benefits the economy in aggregate, it makes sense to reduce anti-trade sentiment and mitigate the damage trade does to individual workers.

Two critical factors were not addressed.

(1) Unless you're drawing from a very small, very skewed sample, relatively few people will be able to absorb much high-value education or training after the age of 20 or 25, and fewer still will be willing/able to leave their hometowns (even after trade devastation). High-wage skills (engineering, finance, corporate management) are not hard to identify, but two challenges remain. (a) These are skills that many people cannot acquire in their lifetimes (I know I could not). (b) These skills would quickly slide from high-wage to low-wage if many people did manage to acquire them. Do dislocated workers have only the two options (be among elite few who can acquire new skills/relocate or be among unfortunate many who either don't work again or never make up lost wages)?

(2) Labor demand responds to accelerating changes in technology, trade, and consumer tastes. Education-and-training costs increase at 2-3 times the rate of inflation. Returns on education-and-training investments have been flattish or declining. (Saying that high school graduates lose ground more quickly than college graduates lose ground does not mean that today's college graduates gain ground faster than predecessors.) Meanwhile, accelerating change shortens the shelf-life of education/training credentials. Workers face decreasing emphasis on mere seniority and increasing emphasis on credential "freshness". Individual workers find it harder to invest in education and training when the person who finishes the program next year will probably be ready, willing, and able to do their jobs, better, for less money.

D* writes:

Can anyone comment on what policy level, what mix of private and public, what level of cooperation, and but what means the costs to deal with the abrupt dislocation of a large and now superfluous workforce of people is mitigated?

If I understand correctly, one person without an income is not only 1 data point outweighed by an aggregate. 1 persons income or loss has a multiplier affect in their family, community, etc.

If policy makers know a country is about to dump on orders of magnitude, some commodity into a market, surely there is some wariness or forecasting of how that might, or will, be disruptive and what the down-side will look like. Perhaps there might even be some reticence on giving it blessing.

At what policy level is 'prudence' assumed and how is it measured?

Canadian Quinn writes:

I think one essential component was lost in this discussion.

Money isn't stuff. Money is one thing, legal tender used to pay debt. It's also a pricing signal.

As well, due to the way money is created, most USD out there is accompanied by debt that will by enforced by American courts.

So, when there's a trade deficit, you certainly have more 'stuff'. But Dr. Roberts periodically says "people have more money from the savings". No, there's *literally* less money.

If people buy $1 billion of Chinese'stuff' for only $800 mil, consumers out there have $200 mil extra legal tender to spend (yay!). But there is $1 billion in debt at home that only have $200 million to pay it off.

So, instead of $1 billion USD trying to pay off $1.04 bil of debt ('cause interest), leading to a Schumpeter turnover of 4% of business assets being retasked (actually, more than 4%, since resale price is less than purchase price if the business is failing), you have $200 million being pursued to pay $1.04 bil in debt.

The sold T-bills bring back the actual DOLLARS, they're redistributed by gov't spending and then and then $1.04 bil of debt chases those billion dollars by providing things people want.

And you'd rather the Chinese be buying tbills that pay them interest than buy American assets during a recession when people have to pay off $1.04 bil in debt when there's $800 mil less in the economy. You want Chinese to buy trade goods, sure. But not *assets* during a total buyer's market.

Remember, bankruptcies create dollars (since the debt is written off, but the created dollars still exist). You'd rather an economy create dollars at the low-boil of $1.04 bil debt chasing 1 bil dollars than $1.04 bil debt chasing $200 mil

Canadian Quinn writes:

Obviously the total number of dollars is vastly less influenced then the numbers I've shown, since we have many more dollars that were created by earlier bankruptcies than are created by current debt, but the point stands. The loss of dollars from the economy will cause bankruptcies at a faster rate than if they'd stayed.

Amy Willis writes:

@Dan,your first point raise an important issue- the age effect. I agree with you that more/better education/training is too simplistic an answer. Is it even worth it (in an efficiency sense) to retrain people close to retirement age? Should we just pay them off, so to speak? And while I whole-heartedly agree with RUss's emphasis on the dignity of work, it may be the case that it's not universal. (Certainly we should be opposed to policies that DISincentivize work across the board, but there may still be people "left over" who are not interested in such solutions as relocation, retraining, etc. Tough policy issues.

Simon Cranshaw writes:

Something like (4) was the question that occurred most to me while listening. It's not clear to me what exactly Autor was advocating. I assumed he meant some kind of financial compensation though perhaps it's not.
It's certainly a good question as to what could be done to lessen the pain of displaced workers. It could be argued that the education system is very distorted by top down policies and that much that is taught that is not useful in terms of useful skills to be sold in the market. Perhaps a less regulated and more market oriented education system would give people more adaptability in their productivity.

Jason Bray writes:

2. I do agree with Roberts on this one, that trade deficits are not really bad, except in that we are spending that investment poorly. Because we regain many of these dollars in the form of selling debt to Chinese interests, we are borrowing a vast amount of money and this will have consequence.

But inherently this is not a problem with China, but rather a problem with our government taking on so much debt. If we were not interested in spending above our income to such a great extent, there would be no offer of debt to China and the money would come back to us in a different way.

Ironically, the spending financed by this debt, if it were used in a way to increase capital in some sense, the overall benefit we gained from borrowing cheap money would be so great as to make this a fantastic net increase and potentially to counteract some of the effects that were described in the podcast. However, it appears that the money has been spent inefficiently with very little long term gain in capital.

mtipton writes:

Is it worth it that a small portion of the population see their wages decrease, if there are huge long-term benefits to trade? Seems like it is the price of having a dynamic economy, seems a lot of people benefit greatly from the lower prices and the lives of many more are greatly improved including the poor. And with younger people adjusting behavior accordingly could be a temporary wage depression. I am not saying we shouldn't have programs that help unskilled unemployed adults learn skills that are in demand, we can still attempt to do that. On a separate but related note, is there evidence that the retailers that are selling all these Chinese products are RAISING WAGES? I've been thinking a lot about the meaning of "loss of manufacturing" jobs to China, in part because of Donald Trump's stance, after listening to this podcast Donald Trump doesn't seem as out of touch, in terms of bringing to the forefront the costs of this to some Americans. I am in the middle of a remodel and have been buying A LOT of materials at stores like Home Depot, Lowe's and other local construction stores. At these stores I see older people to whom it appears to be long-term employment, how do these jobs compare to manufacturing jobs in terms of wages? When at one of the stores the cashier was sharing how well they get paid even as an entry level cashier. I know stores like COSTCO have also been raising wages. Is there any evidence that BIG BOX stores that rely heavily on selling Chinese products are RAISING WAGES for workers? I am wondering if there is an adjustment going on, where new decent wage opportunities are arising for non-college educated people throughout the economy that we aren't noticing. Maybe the gains from trade with China are so large, that the people that are in the supply chain of delivering those products to us should be able to make a decent living, even if it is a cashier.

Ron writes:

"Trade is the exchange of goods or services. Trade by definition is balanced and it enriches all participants. It is win/win. The more trade there is, the better for all parties.
The exchange of goods for debt is not trade, it is a transfer of wealth and a transfer of productivity gains. It is win/lose and it enriches the exporter and the rentiers at the expense of the importer. Much of what passes for trade today falls into this category". (Quote from the book "Productivity Economics: Making Capitalism Work Again")

Trade for debt is one of the root causes of inequality and declining standards off living for low and middle income workers.

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