Trade

This op-ed was originally published by The Detroit News online on October 20, 2024 and in print on October 21, 2024.  As Americans get ready to head to the polls, no issue is more central to their choice for president than the economy. Both candidates have outlined distinct plans for how to boost U.S. economic strength, and former President Donald Trump has doubled down on his belief that reducing trade will help achieve this. He wants to put across-the-board tariffs on products coming into the United States, a policy that will not only increase inflation, but also make it harder for American companies to grow their business. The simple reality is that trade supports American economic prosperity. Calls for raising barriers to trade will only hurt American economic dynamism. One of the most significant challenges to defending trade is the reductive nature of campaign sound bites. Trade produces a range of benefits, some of which are obvious, but many others that are not. Politicians often complain that trade is just about expanding people’s ability to buy cheap goods like toys, clothing and furniture. However, trade also bolsters the ability of businesses to access affordable, high-quality parts and components that they use to make products to sell in the United States and around the world. Those parts that we bring in from other countries, such as axles, batteries and steel pipes, make up half of all imports. This means that much of what we trade is not consumer goods such as phones and furniture, but essential inputs to the U.S. economy. Take the iconic American truck — the Ford F-150. In addition to American labor and components, Ford relies on foreign parts for producing the F-150: about a third of all its parts are sourced from abroad. It is then sold in the United States and other countries around the world. Popular demand for the F-150, both in the United States and abroad, supports 3,800 jobs at the Dearborn plant where the trucks are assembled. But the economic benefits are not just limited to this single plant. In fact, Ford employs 59,000 hourly workers around the country to manufacture its line of cars and trucks. Along with auto workers that work on the assembly line, Ford employs a range of other workers, such as product designers and software engineers that research and develop the software that is embedded in all modern vehicles. Ford Credit also sells automotive financial products to finance the purchase of Ford vehicles. Americans understand the value of those jobs, and evidence shows that automotive jobs pay higher wages than those in other manufacturing industries. The importance of trade to those jobs is rarely talked about on the campaign trail, however. Many companies like Ford make a wide range of sophisticated products using both American and foreign inputs that are in high demand at home and abroad. By taking advantage of trading opportunities, these companies create a lot of American jobs across a diverse range of industries and are a source of strength for the U.S. economy. In fact, U.S. firms that trade in goods support half of all jobs in the economy, and almost three-quarters of those jobs are at firms that both export and import goods. These exporter-importer firms are major employers across key sectors of the economy, employing over half of all workers in manufacturing, retail, transportation, utilities, wholesale, and information. The things they trade also increasingly include higher-technology goods and services. Trade continues to be central to job growth in U.S. manufacturing, as well. In the past decade, total manufacturing employment increased by about 10%. During the same period, while non-traders continued to shrink, goods-trading manufacturers created more jobs on net. Because the share of goods traders in manufacturing employment averages about 85%, this recovery would not have occurred if all manufacturers grew at the same (negative) rate as non-traders. For all those reasons, calls to raise barriers to trade, such as through tariffs, could hurt the U.S. economy. Examining the realities of job growth in U.S. industry dispels the commonly held view that only exports support domestic job growth while imports harm it. Imported inputs are often essential ingredients to U.S. production that supports plants throughout the United States. To bolster the fundamentals of U.S. economic strength, Americans need a trade policy that is more open, not less.

In my new paper published by the Aspen Economic Strategy Group, I highlight the persistence of unhealthy globalization and lay out some proposals for a more sustainable regime. 

China’s main explanation for the $300 billion plus gap between its customs surplus and its goods surplus in the balance of payments is the Apple iPhone.