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The downsides to trade with China

A Chinese worker stands in front of containers at a cargo terminal in Shanghai.

Kai Ryssdal: Senate Majority Leader Harry Reid said today he's going to bring a bill to the floor in the Senate next week that goes after Beijing for manipulating its currency. Just the latest indicator that there are those in Washington and elsewhere who say we're not getting all we could from our trading relationship with China.

Gordon Hanson is an economist at the University of California, San Diego whose most recent research says exactly that. Good to have you with us.

Gordon Hanson: My pleasure to be with you, Kai.

Ryssdal: Conventional wisdom has it that trade is, in essence, good, and trade with China, while painful, is positive. And you're not disputing that, but there's a downside here that we haven't really thought about.

Hanson: There is, and it's something that economists have been uncovering slowly over time; it doesn't often get a great deal of attention because people like to tell the good news story about international trade, but there are consequences for workers who are in the front line of international competition.

Ryssdal: Lay them out. You went and surveyed -- you and your colleagues went and surveyed every county in the United States, right, for its exposure to Chinese trade?

Hanson: If you look across U.S. regions, different parts of the country produce very different types of goods. You're worse off in certain parts of North Carolina, certain parts of Tennessee; it's the southern Midwest and kind of northern southeast that have taken the brunt of this impact. But that said, the impact of China trade has really been felt nationally. Here in San Diego, where I live, we've lost sporting goods industries as a result of Chinese competition. Callaway golf clubs, which used to be made right here in Carlsbad, are now made in China.

Ryssdal: And when you are exposed, what happens?

Hanson: Larger reductions in manufacturing employment; larger increases in the fraction of your population that is unemployed; and ultimately, what that leads to is greater uptake of government benefits of various types.

Ryssdal: And the commensurate increases taxes that we have to have to pay for those, right?

Hanson: Correct.

Ryssdal: Is there a way for us to know what trade with China is costing us? I mean, yes, there's a net benefit, but there are significant downsides, right? Do we know how big those downsides are?

Hanson: We have a sense. So the benefits from China we're estimating are on the order of $100 per capita in the United States. So we're talking about efficiency losses associated with the government benefits that are on the order of $25 to $30 per capita. And so you say that $100 savings we got from making purchases at Wal-Mart, well we're going to lose $25, $30 of that associated with a tax liability, we might face today, we might face somewhere down the line.

Ryssdal: Is this research that says trade with China is bad and we ought not do it?

Hanson: Absolutely not. As economists, you're sort of beholden to the idea that free trade is good because it increases global efficiency. But to get people to buy into that notion, you have to convince them that if they're going to take it on the chin, there's going to be something there to help them make adjustments. And so what we've got to think about is a set of public policies that help workers who are on the front line of competition with China move into other sectors and do so in a manner that doesn't impose all the burden on them.

Ryssdal: So if you go to China -- I mean, I was in Shanghai two-and-a-half-ish months ago, and I've been going repeatedly for the past dozen years -- if you're there, you see these changes happening and you know that something's coming. Did we just not plan for this, or is it happening too fast for us to plan?

Hanson: Well, we're living through an unusual moment. We don't normally see very large economies go through very rapid adjustment. We've certainly seen economies that have opened themselves to global trade, that have privatized, that have deregulated like much of China has done. We've seen that before. But never on this scale. That's what's different this time around.

Ryssdal: Gordon Hanson is a professor of economics at the University of California, San Diego. Professor, thanks a lot for your time.

Hanson: Thanks very much, Kai.

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Trade is not the problem - it is the balance between trades component parts - exports and imports. It is the trade imbalance that is the problem and in the case of China it is their export surplus. They follow a mercantilist trade policy that equals unfair trade and results in exporting their unemployment to us. We have to find a way to overcome their unfair trade strategy. On the personal level I do everything I can to avoid buying things made in China. But we need a macro approach as well. What can we do on that level?

One of my first jobs was in a golf club factory, in my last year of high school. It wasn’t much, but at least it helped me save up enough money to immigrate to Canada. (They told me to love it or leave, so I did.) I’m sure many kids today would love to have that job (and they might seriously consider the plan, too). The professor’s concern here for the welfare of U.S. workers sounds suspiciously like an outline for a new course that might be entitled: Globalized Free Trade: advanced rhetoric 101. The old bit about free trade reducing prices for everyone just ain’t makin’ it anymore; everyone knows that it has primarily only served to increase profits and eliminate jobs. “To get people to buy into that notion,” he says, “you have to convince them that if they're going to take it on the chin,” or some such metaphorical equivalent, “there's going to be something there to help them make adjustments.” What, I wonder, are these compensating “public policies” and “other sectors” that he has in mind? An expanded public sector, perhaps, with union wages, funded by higher taxes, and particularly on multinational corporations? A drastic hike in import taxes to protect domestic manufacturers? Policies that tax, retard, compete with, and confront globalized finance head on, instead of subsidizing and pandering to it at workers’ expense? Or, maybe he has something else in mind, eh?

To balance Free Trade, perhaps we should more heavily tax corporations that have their products manufactured overseas.

Outsourcing jobs hurts our job market, here. The companies charge the same amount for their products, but pay less to make them; thus yielding unnatural profits which they promptly pay to their executives instead of to the government in taxes.

If we were to tax these corporations heavily, we would have more money for social services to help the people their policies have displaced. It may be the only way forward.

The above respondents all have relevant points. However, Prof Hanson in this piece did not view economics as applied in its strictest scientific and mathematic sense: Globalization is advantageous when one leaves out the costs of change that individuals and groups encounter as they adjust. Prof. Hanson's work does take these costs into account when he discusses workers in the "front line of international competition". Other issues & problems regarding trade with China are certainly present and maybe someday globalization will prove to be our undoing, but otherwise I think Prof. Hanson is just stating the obvious regarding the downsides for those negatively affected by free trade.

Ha, ha! This piece made me laugh! After we all found out that economics is full of it in 2008, we're still interviewing economists to tell us what's good and bad for us in our economy?

The fact that Professor Hanson feels economists are "beholden to the idea that free trade is good" spells it all out, and probably colors his study more than he'd care to admit. How about challenging the notion that it is good, which was completely unfounded to begin with? How about accounting for the decreasing tax base that accompanies increased unemployment? How about accounting for additional crime, stress on public services, blighted communities, and decreasing upward mobility for generations resulting from long-term unemployment?

This trite and terse view of economics as a numbers game is unproductive and uninformative.

There really needs to be a measure of American prosperity and progress other than that laid out by economists. What good is efficiency if no one can afford the produced goods and services. Lower prices are not always better. And where are the environmental efficiencies? How can apple juice from China be efficient when taking transport into account and domestic production?

I cannot remember a more irritating story on Marketplace. Only an economist could come up with an equation that included only savings from shopping at Wal-Mart and costs from tax liability and call that a day. And only an economist would say that (while recognizing the dislocations) that a $75 per capita savings was worth it on balance. A San Diegan losing a $50,000 job at Callaway to save $75 certainly seems seems like a bad bargain for that person in particular. It's also a bad bargain for me here in California with a budget situation that never seems to hit bottom. I don't like having 12% (but really much higher) of my neighbors out of work. The fact that academia, corporate media, government and business all buy the obscene notion that $75 dollars saved is worth that says a lot about just how long this economic problem is going to take to be resolved.

Hey Guys,
I know this wan't on "all things considered" but seriously, why didn't NPR look at the distruction the US has brought through free trade? Jamaica's dairy industry, for example, wiped out. And there are many more.
This is a two way street. Please try to limit the politicking, NPR. We count on you for better.

China is a dangerous partner to do business with. We are exporting money and technological know-how at an alarming rate. China does not share our same standers of humanity or environmental stewardship. China does not desire the products that we produce and instead choose to hoard American currency abroad — moneys meant for circulation!

In the book "Tiger Trap," we learn that the amount of technical knowledge lifted from the US is almost without bounds. It is really very disheartening.

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