Workers Knew First: Media, Politicians and Economists Finally Admit they were Wrong
Joel D. Joseph, Chairman, Made in the USA Foundation
Twenty-five years ago, there was a widespread consensus that more trade was good for everyone. In 1993, the North American Free Trade Agreement, NAFTA, passed with Democratic and Republican support. In 1972, Richard Nixon opened the door to China trade with Democratic support. The overwhelming majority of the media supported more free trade and claimed that it was good for the American economy. Similiarly, most economists thought that more trade was a no-brainer, that it created jobs in the U.S. and abroad. But they were all wrong.
Earlier this month the New York Times finally admitted that it made a grave mistake: "What seems most striking is that the angry working class -- dismissed so often as myopic, unable to understand the economic trade-offs presented by trade -- appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs."
The New York Times noted a recent study by three economists -- David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego that found that a prime economic assumption relied on by international economists was false. The false presumption was that economies quickly recover from trade shocks. For example, when Chinese furniture replaces American furniture, the U.S. economy is supposed to adjust. In theory, a developed industrial country like the United States was supposed to adjust to import competition by moving workers into more advanced industries that could successfully compete in global markets. But this theory, like so many other economics theories, proved to be wrong. Dead wrong.
The economists examined the effects of increased U.S.-China trade. The presumed adjustment, they concluded, never happened. Wages remain low and unemployment high in the most affected local job markets. Nationally, there was no sign of offsetting job gains elsewhere in the economy. What's more, they found that sagging wages in local labor markets exposed to Chinese competition reduced the average earnings dramatically.
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