Higher labor pains in U.S.-China trade?

For decades, the economic wisdom has been that lower trade barriers create better wealth for both parties.

Outsourcing low-skilled, low-wage jobs to an India or Mexico helps those developing economies, while that loss of industry in a developed economy like the United States is more than offset by lower product costs and an employee talent pool that finds work higher up the economic food chain. Everybody wins.

A new study, however, suggests that when it comes to China, the economic benefit to the U.S. may be less than previously thought.

“The study, conducted by a team of three economists, doesn't challenge the traditional view that trade is ultimately good for the economy,” writes Justin LaHart, who first reported the study for the Wall Street Journal. “Workers who lose jobs do eventually find new work or retire, while the benefits from trade, such as lower prices, remain. The problem is the speed at which China has surged as an exporter, overwhelming the normal process of adaptation.”

The study estimates that the cost to government in increased costs such as unemployment benefits erode as much as two-thirds of the total benefits the U.S. enjoys from lower priced products or boosts in sales to an economically stronger China.

The study does not factor in direct economic losses to those in the U.S. left unemployed when business leaves for China. According to the Economic Policy Institute, the trade deficit with China cost the U.S. 2.8 million jobs from 2001 to 2010.

The value of annual Chinese imports has increased “a staggering 1,156% from 2001 to 2007,” according to the report, written by David Autor of the Massachusetts Institute of Technology, David Dorn of the Center for Monetary and Financial Studies in Madrid and Gordon Hanson of the University of California in San Diego.

Speaking to the Wall Street Journal, Nobel Laureate Michael Spence said current economic theories have never been tested against the blistering growth seen from China and other developing markets. "It's not like we can look to the past and ask ourselves what happened last time this happened, because there wasn't a last time," he told the Journal.

comment:

They are not just losing jobs through outsourcing. They are also losing jobs through highly skilled workers import.