Foreign trade angst

Presidential candidates Hillary Clinton and Barack Obama, pandering to anti-trade activists, suggest should they become president they will restrict trade agreements. Before you buy into their promised paradise, you might consider a few trade questions.

Suppose you were choosing a country to live in. Would you prefer a country the world is champing at the bit to put its money into or one where the world is unwilling to invest? Let’s look at the numbers.

The United States is the world’s largest recipient of foreign direct investment. According the Economic Report of the President, in 2004, foreigners owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They produced $515 billion of goods and services, accounting for 5.7 percent of total U.S. private output, and employed 5.1 million workers, or 4.7 percent of the U.S. work force in 2004. According to the Congressional Research Service, in 2006 alone, foreign investors spent $184 billion investing in U.S. businesses and real estate, the highest amount foreign investors have spent since 2000. My question to Mrs. Clinton, Mr. Obama and the anti-trade lobby: Would Americans be better off if there were no foreign investment in our country?

According to the Bureau of Labor Statistics, between 1996 and 2006, about 15 million jobs were lost and 17 million created each year. That’s an annual net creation of 2 million jobs. About 3 percent of the jobs losses were due to foreign competition. Most losses were due to technology, domestic competition and changes in consumer tastes.

Some of the gain in jobs is a result of “insourcing.” Foreign companies — such as Nissan, Honda, Nokia and Novartis — set up plants, hire American workers and pay them wages higher than the national average. According to Dartmouth College Professor Matthew Slaughter, “insourced” jobs paid 32 percent higher salaries than the U.S. average. So here’s my question to anti-traders: If “outsourcing” is harmful to the United States, it must also be harmful to European countries and Japan. Would you advise them to take their jobs home?

Wal-Mart has become the whipping boy for political demagogues, unions and anti-traders. I suggest they have the wrong target. The correct target is revealed by answering the question: “Why does Wal-Mart exist and prosper?”

Wal-Mart exists and prospers because tens of millions of Americans find Wal-Mart a suitable source of goods and services. Mrs. Clinton, Mr. Obama, unions and anti-traders should direct their outrage and condemnation at the tens of millions of Americans who shop at Wal-Mart and keep it in business.

There is great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, and it’s mainly a result of technological innovation, and it’s a worldwide phenomenon. Daniel W. Drezner, professor of political science at the University of Chicago, in “The Outsourcing Bogeyman” (Foreign Affairs, May/June 2004), notes that U.S. manufacturing employment between 1995 and 2002 fell 11 percent. Globally, manufacturing job loss averaged 11 percent. China lost 15 percent of its manufacturing jobs, 4.5 million manufacturing jobs compared with the loss of 3.1 million in the United States. Job loss is the trend among the top 10 countries who produce 75 percent of the world’s manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada and Mexico).

But globally, manufacturing output rose by 30 percent in the same period. Research by the Federal Reserve Bank of St. Louis indicates U.S. manufacturing output increased 100 percent between 1987 and today. Technological progress and innovation are the primary causes for the decline in manufacturing jobs. Should we save manufacturing jobs by outlawing labor-saving equipment and technology?

Economist Joseph Schumpeter referred to this process witnessed in market economies as “creative destruction,” where technology, innovation and trade destroy some jobs while creating others. While the process works hardships on some people, any attempt to impede the process will make all of us worse off.

Walter E. Williams is a nationally syndicated columnist and professor of economics at George Mason University.