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Manufacturing Unemployment: Free Trade with Low-Income Countries on the Rise

A recent look at free trade agreements by Professor Nancy Folbre explains the ill effects such agreements have on income inequality. Her piece, “The Free-Trade Blues,” discusses the upcoming Trans-Pacific Partnership and how it will damage an already hurting U.S. manufacturing industry:

The A.F.L.-C.I.O. has bitterly complained of trade-related job losses, and Robert E. Scott of the Economic Policy Institute published a report last year calculating both overall and state-level job losses attributable to trade with China. Many academic researchers, discounting estimates not published in peer-reviewed journals, remained skeptical.

But a sophisticated econometric analysis by the economists David H. Autor, David Dorn and Gordon H. Hanson, forthcoming in The American Economic Review, offers new evidence of a significant negative impact, controlling to the extent possible for other factors such as automation.

Titled “The China Syndrome: Local Labor Market Effects of Import Competition in the U.S.,” the article examines the period between 1990 and 2007, during which the share of all manufacturing imports to the United States coming from low-income countries increased to about 28 percent from about 9 percent. This increase was largely driven by China’s export success in an increasingly open global economy.

The authors of the M.I.T. study explain that import competition is attributable to about one-quarter of the aggregate decline in United States manufacturing employment over the period (1990-2007). These numbers lend support for the argument that free trade agreements are costing American workers their jobs. As wages decrease, government programs see an influx of citizens who need their support, ultimately at the expense of the taxpayer.  

The MIT authors’ conclusion regarding the fate of free trade with low-income countries is unequivocal:

We find that local labor markets that are exposed to rising low-income country imports due to China’s rising competitiveness experience increased unemployment, decreased labor-force participation, and increased use of disability and other transfer benefits, as well as lower wages.

America. 2013.

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