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Shattering the Myths About U.S. Trade Policy

Robert Z. Lawrence and Lawrence Edwards

Many Americans blame free trade for their nation's economic slide, but the authors' research shows that free trade has been assigned a villainous role that far exceeds its real impact. The evidence exposes three myths. Myth 1: "America's open trade policy is the main cause of job losses, especially in manufacturing." The real drivers of the losses: rising productivity growth in U.S. manufacturing and a shift in demand away from goods in favor of services. Myth 2: "U.S. living standards are falling and wage inequality is rising because developing countries compete with the U.S. in its export markets on cost." The truth is that the U.S. and developing countries have specialized in very different products and processes, making the latter complementary to America's growth. Myth 3: "The rapid growth of emerging markets like China and India is the most important reason for the higher oil prices that hurt Americans." The primary responsibility for the shortfall between demand and supply that has caused oil prices to soar rests with developed countries, which contributed to most of the price increase from 2000 to 2008. The authors advocate a more active U.S. trade policy that emphasizes exports, bilateral cooperation with other economies to maintain a trading order that supports U.S. economic interests, and plurilateral agreements with WTO members on issues such as competition policy.

Read the full article here.

Tags: Trade Policy

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  • 05 Feb 2012

    Sanath Palipana

    This is a complex subject and I think that it is necessary to:

    -analyse different type of economic activities at micro level; -identify strengths and weaknesses; -check if the current system is fair and if not, the possible ways of improving it; -check if there are any common denominators, among different economic activities, that would impact on the national economy; and -Check if the problems should be addressed nationally or globally at political level

    As an example, let us assume that I have been asked to prepare the selection criteria to include in an international tender to select a tenderer to design and construct a major pipeline project in Mexico. The functional requirements are given. Even though I am an Australian citizen, I am ethically bound to be fair to all the international tenderers who would bid for the job (including American Companies).

    There are straight forward (and fair to all the bidders and Mexico) factors that I could include in the selection criteria and they include:

    -Experience of designing pipelines (I am an Australian, but almost all the text books and computer programmes (in relation to pipeline designs) I have got are American. The contribution made by the American Universities in the pipeline design field is tremendous. So, I don???t think for a second that this would be a problem for an American company)

    -Experience of constructing pipelines (This is simply not a problem for an American bidder)

    -Design Standards (This shouldn???t be a problem for an American bidder. However, I am not sure if American Pipe manufacturing companies manufacture pipes complying with ISO standards and SI units. I haven???t seen any American pipe in my carrier. But almost all the complex control valves I have seen are American made. It shouldn???t be that difficult to change the standards. I have seen one Chinese company being able to supply pipes complying with Australian Standards within a very short period of time and now it is a major player in the Australian market).

    -Raw material used for designing, manufacturing, supplying, constructing and commissioning the pipeline (this shouldn???t be a problem for a US company)

    -Environmental emissions in designing, manufacturing, supplying, constructing and commissioning the pipeline (this shouldn???t be a problem for a US company)

    -Labour hours for designing, manufacturing, supplying, constructing and commissioning the pipeline (Americans work hard. This shouldn???t be a problem for a US company)

    Now it comes to the more difficult part. The additional factors that I must consider include:

    -Quality system (The quality system for a US or Australian Company would be completely different to that for another company in another country. How can I be fair to every bidder? One possibility is that I develop the quality system and include labour hours and other resources to implement it in the tender)

    -Safety System (This is like the Quality system. A US company would take safety aspects very seriously. So would do a company in Australia. So I would need to develop a fair system and include resources to implement that in the tender)

    -Environment (this would be the same as above two. I would need to develop something)

    So far I haven???t considered the cost (labour and material cost). This is the most difficult thing.

    The labour cost in the US and Australia could be much higher than that of another country. That is nothing to do with the competitiveness. Can we reduce the labour cost in the US or Australia without forcing the people to go below the poverty line? It is impossible. Also, can we ask another country where the labour cost is cheap to increase it? It is unfair to that country and Mexico. Do we have to have a government subsidy system to counterbalance this (this may not be possible, especially in the USA)? Do we have to have a world fund to address this imbalance (possible)? Do we have to develop world standards and a body to audit trade practices?

    Or do we have to encourage people to buy national products (will not work)? Can we ask companies to have domestic manufacturing facilities (companies like Apple wouldn???t like it, because it will make themselves financially not viable)? Or do we have to focus on high-tech and green products (still we will have to address the problem of unemployment)?

    The above is an oversimplified example. When we consider the car manufacturing industry, we may be able to obtain lessons from Germany.

  • 16 Oct 2012

    Anonymous

    The characterization of these as myths are contradicted by the HBS competitiveness survey results.

    I would argue you relearn economics. The US is being gamed and the empirical results are glaring. 60,000 factories shut down. Millions of jobs lost.

    Most of this can be tied to China and GATT (1990's)/ WTO (2000's). Large, big box retailers said produce in China or you are out. Slave labor costs, no environmental or OSHA regulations and state sponsored enterprises can all undercut US manufacturers who play by the rules.

    Is this a propaganda web site or a serious attempt to make the country stronger? Given the focus on taxes as a solution, I have my doubts about the latter.

    Much here ignores history and lessons learned over centuries of economic and trade policy. How about a little more old school at this very old school?