Finally, straight talk on trade: It's good, but not for everything

Value Chains

Finally, straight talk on trade: It's good, but not for everything

Mounting evidence is persuading economists that globalization, not just technology, is eroding middle-class pay in rich countries. Photo: <a href="http://flic.kr/p/58yf2U">Seattle Municipal Archives (Flickr)</a>
Mounting evidence is persuading economists that globalization, not just technology, is eroding middle-class pay in rich countries. Photo: Seattle Municipal Archives (Flickr)

One of the less plausible pieties of international economists—the claim that globalization doesn't substantially hurt the middle class in rich countries—may be dying, the New York Times reports.

Responding to The Times’s recent survey about the causes of U.S. income stagnation, many top economists have cited globalization as a leading cause.

While the evidence is still not conclusive, it is pretty strong. Trade’s effect on jobs and income, which was probably modest through the 1990’s, now seems to be growing much larger.

In its analysis, the New York Times' Economix blog cites persuasive evidence that trade is flattening worldwide wages:

The recent strike in Joliet, Ill., at Caterpillar – a true global company — ended with union workers being forced to accept an agreement that includes a six-year wage freeze, even as the company is earning record profits. Elsewhere, two-tier agreements, in which new hires earn wages and benefits roughly half as large as those in the old union contracts, have become standard in many of the manufacturing industries that remain in the United States.

In developing countries, of course, trade is rapidly driving up median incomes, though they remain far below Western standards.

Writer Edward Alden also makes the interesting observation that the world's recent economic slowdown hasn't led to a protectionist panic.

One reason that economists may be uncomfortable talking about trade’s impact on jobs and wages may be concern that it could set off protectionist responses. … But I think the fear of protectionism is overblown. One unexpected feature of the great recession was how little protectionism it led to, especially in the advanced economies. The lesson of the Great Depression – that protectionism is counterproductive – seems to have been learned.

If Alden is right, this is a welcome sign that academic economists in the United States are ready to talk to Americans like grownups. Even from Americans' perspective, the argument for trade is powerful: it's driven down prices, accelerated innovation and fostered world peace.

And, yes, it's also slowed wage growth for many people. That doesn't mean trade is bad. It just means it's imperfect.

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