Recently, the New York Times reported that international trade is down. Global trade was flat in the first quarter of 2016 and fell slightly in the second quarter, with the value of American imports and exports falling by more than $200 billion in 2015. While this may merely be a temporary lack of demand for imported goods, it is starting to look more like a New Normal. What does a general reduction in international trade mean for you and me?
Plenty of pundits and bad economists advocate for increased globalization and free trade agreements, talking up the advantages for the lower classes, such as more and cheaper goods available at the local WalMart. This is true, but it’s definitely not the whole story. When we buy goods from other countries where they can be produced more cheaply due to wage arbitrage and lax regulations, but those countries do not return the favor by sending those dollars home in exchange for American goods and services, it means that we’re sacrificing jobs to get those imports. Cheap trinkets are only a net benefit if they increase our buying power relative to what we could purchase before. If we can’t buy goods at any price because our jobs went away and we’re broke, the fact that they’re less expensive now is not really a win, is it? That’s why the advantages of free trade were apparent when the economy was booming, but now that it has hollowed out our economy, the disadvantages of killing off American jobs to benefit the owners of capital are becoming obvious enough to cause political ripples (or a Trump tsunami). If international trade is waning because we’re now making more of the goods we need domestically, that could mean more jobs for us and our communities.
— Baba Shetty (@babashetty) July 12, 2016
The famous “Elephant Chart” by Branko Milanovic shows how the economic gains from globalization accrued largely to the poor and working classes in developing Asian countries and the very wealthy in the West, while leaving behind the working class in the United States and Europe.
Those repatriated jobs, however, come at a cost to our national image. After World War II, the American distrust of Communism spawned the Cold War. Europe was in a shambles while the American economy, fueled by wartime cash savings and pent-up demand for previously unavailable consumer goods, was booming. In order to make an alliance with the United States appear more desirable than embracing Communism, the U.S. offered significant economic concessions to allies and even former enemies, such as opening American markets to Japanese goods. By propping up European and Japanese interests, presidents from Harry Truman onward were able to mitigate Soviet expansionism. For a long time we were able to sustain that effort and strengthen America’s brand through a combination of international trade (we’re buying!), while denying the Eastern bloc a significant market beyond the Iron Curtain and preventing them much access to Western technological advances. In short, we became the world’s customer at our own expense in order to facilitate a favored status in world politics, eventually contributing to our status as the lone standing superpower once the Soviet Union collapsed. Reducing international trade means that we’re less important as the world’s market, so we may not be able to command the kind of respect on the global stage that we used to.
On the other hand, there are benefits to reduced international trade that may not be obvious. Trade has been so important for so long that criticizing the whole concept of trade goes over like a fart in church. However, consider: how many of the world’s problems, from resource depletion to atmospheric carbon to species extinction to tyrannical government, is caused by human overpopulation? Since the number of people who can live in any given region is limited by the available resources in that region, trade among regions for vital resources like food or oil directly impacts world population. For example, imagine an area that is rich with fresh water and fertile soil, but which, being inland, lacks salt. Another area on the coast would have access to salt, but might have sandy soil that couldn’t grow much food. The population each area could support would be limited by the resource in least supply. By trading salt for food, both regions even out their resources and their populations will grow. This may seem like a good thing, except it makes them dependent on continued trade, because if something happens (a drought, say, that impacts food production), then the populations are left high and dry without the resources they need to live, which can result in suffering and collapse, or even war. Not only that, but each trading partner must, by necessity, exploit and commodify more of their tradable resource than they would need for themselves, driving resource depletion. Since continued growth also results in problems, perhaps it is best for each region to be as self-sufficient as possible, even if it means that items like bananas are completely unavailable in Michigan, and businesses shrink to become hyperlocal. Trade in non-essential (luxury) goods does not have the same effect, and trade in status items and gifting between groups is very old indeed.
The global economy is complex. International trade has ripple effects into our everyday lives, and affects everything from the American presidential election to the price of tea in China. Instead of declaring any aspect of the economy good or bad, it’s best to ask, “Bad for who?” or “Good for what purpose?” In fact, those are good questions to keep in mind for any issue.