Is Donald Trump right that U.S. policies have focused too heavily on globalization? Was this bad? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
Answer by Russell Roberts, EconTalk host, research fellow at Stanford University's Hoover Institution, on Quora.
Trump is not alone. Bernie Sanders certainly was critical of globalization. Hillary Clinton has toned down or reversed past enthusiasm she had for globalization. Trump's distinctive point is that we've been out-negotiated, and that if a tough negotiator had been in place, we could have gotten better deals with say, Mexico, or China.
I think that's an artful complaint, but it's misleading and a little dishonest. On one level, trade is quite simple: buy where the value is highest. If your neighbor can make a great car at a great price, buy from your neighbor. But being told you have to buy from your neighbor when the car made in Detroit or Japan is a better buy for you not only keeps you from pursuing the car that is best for you, it also reduces the incentive for your neighbor to do a good job.
The whole idea of free trade is to give people in different nations the opportunity to buy and sell freely with each other. Because the people in different nations have different skills and desires, that is going to mean a rearrangement of economic activity relative to what it would be without free trade. It will generally make both nations richer, though it will not necessarily make every individual in each country better off. If you lose your job because your factory moves to Mexico or China, you are going to have a tough time for a while, and maybe a long while, depending on how long it takes you to find another job that is nearly as good or better. That's not the result of "poor negotiation" by the leaders of the country. It's a result of the natural market forces that have been unleashed, and that in this particular case, make life harder for you.
My claim then, is that the "bad trade deal" argument is something of a red herring. It's a distraction that hides what is really going on and what is possible.
Let's turn to a more interesting question. Forget the negotiation claim that Trump makes. Is globalization good or bad? There is a temptation to argue that trade is about letting Chinese workers make stuff cheaply for us and in return, Americans lose their jobs. I'm a big fan of free trade. If I really thought that was what trade was about, it would be hard to support it. It is true that one aspect of trade with China, for example, is that American consumers get very inexpensive toys, clothes, and gadgets. It is also true that this causes some Americans to lose their jobs. But there is much more going on.
Because Americans have access to inexpensive toys, clothes, and gadgets, they have more money to spend on other things. This in turn benefits workers who make whatever else Americans buy with their expanded purchasing power. Then there's the flow of capital into America to finance further investment. Our trade deficit with the rest of the world is almost the mirror image of our capital surplus. The U.S. is a good place to invest. (Trump and others fail to mention this, as they want you to see a deficit as some kind of unfairness to be attributed to poor negotiating, but it is actually caused by other underlying causes, such as the investment climate.)
The biggest thing that critics of trade miss is that the effects of opening our borders to products made elsewhere helps our children and our grandchildren. Some workers today, in competition with foreign workers, may lose their jobs, but their children will have better opportunities because we allow people the freedom to buy where they want and sell where they want.
How does this work? It's easiest to see when thinking about a different kind of economic change, like the increased productivity of U.S. agriculture. This has meant that instead of 40% of American workers being in farming, as was the case in 1900, it's now 2-3%. Yet food is cheaper in real terms and much more abundant than it was a century ago.
That's been a wonderful thing, but not for every American. If you owned a farm in 1900 and dreamed of your children being farmers, that dream was much less likely to come true. Many children, when they grew up, were forced to leave agriculture and look for work elsewhere. If they had planned on a career in farming, they often had to give that plan up because of the increase in productivity. There simply weren't enough farm jobs to keep everyone working.
But the world those children inherited outside the farm was much more interesting and dynamic because we let farming become more productive. New industries and new jobs could arise because America no longer needed 40% of their workforce in agriculture. Imagine a farmer in 1900 being allowed to see how his or her grandchildren's lives have turned out. True, they don't get the privilege of waking up at 4 AM to slop the hogs, but they get to work in an air-conditioned office, live longer, and have access to things like first-rate music in your pocket that a farmer of 1900 could not dream of.
What we often fail to notice is that the world we live in today is a result of the dynamism of yesterday's world, our willingness to accept economic change, and the full range of consequences, good and bad, that come with it.
Now take that example and instead of thinking about changing productivity, suppose we had fewer workers on the farm today relative to 1900 because of increased imports of food. The story's the same. Americans get access to really inexpensive food and in return, new opportunities outside of agriculture are going to be created. That's what I think trade really represents. It's an expansion of opportunity that is enjoyed by many right away, but only enjoyed a generation or two later by a much greater part of the population. For more on this story, see my novel, The Choice.
Having said all that, I do worry about the dynamism of the U.S. labor market. It may be harder for the next generation to enjoy the benefits of increased productivity from trade or innovation. I do think we need a radical overhaul of our school system to prepare the next generation for lives and careers that may be different from what we have been used to. The children of farmers found good jobs that paid well and were satisfying. It may not be as easy for the children of factory workers whose factories close, either because of foreign competition or increased productivity from robots, to find good and meaningful jobs.
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