A Conversation on Trade and Manufacturing
Ann Harrison is a Wharton management professor of business economics and public policy. Following President Donald Trump’s recent executive order withdrawing the U.S. from the Trans-Pacific Partnership (a trade agreement between the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam), Wharton Global Youth spoke with Harrison about trade and its impact on jobs and lives both in the U.S. and globally. Among other insights, Harrison suggests that we should also be talking about school reform in the U.S., because educated workers are going to benefit from shifts away from manufacturing and toward a more digital economy.
An edited version of our interview appears below.
Wharton Global Youth Program: What is trade?
Ann Harrison: Trade is when a company in your country sells goods outside its borders or buys goods that come from somewhere else. iPhones are manufactured outside the U.S. To get them here, we need to bring them in, which is an import. When we sell goods, that’s an export. Boeing [the world’s largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems with headquarters in Chicago] sells planes all over the world. Those planes are sold and shipped across borders. When it’s sold elsewhere, it is an export and when a good is brought in by plane or ship, it’s called an import. That is the backbone of trade. If you look at trade over the last several hundred years, it’s been going up as a share of the total economy. In small countries, it can even be 100% of GDP [Gross Domestic Product]. In the U.S. exports and imports are 30% of GDP, which is still a really big number and a big part of the economy. Historically, trade has been in goods like iPhones, and now countries have started to trade services, like Hollywood films exporting services to Europe. Service trade is growing, but it is still mostly manufacturing.
Wharton Global Youth: How does trade affect jobs in America, in particular factors like displaced manufacturing jobs?
Harrison: Trade affects jobs as a two-way street. If you’re a worker for Boeing, for example, then you are involved in the exporting of goods. [On the other hand], you might also work in a sector that competes with imports from other countries. In North Carolina, we used to have a thriving textile and apparel industry. Most of those things are now made in other countries and imported. Workers in industries where goods are made somewhere else and imported here are hurt by trade. Workers in exporting sectors – like those at Boeing — are helped by trade. That’s the production side. We also have to consider all the people who buy these goods that are coming into a country. If iPhones were made in the U.S., it would cost you two or three times what it does now to buy them. A $700 Apple product would cost you $2,000 if it were made here. Consumers benefit because imported goods like this can be less expensive to buy.
Wharton Global Youth: What does President Trump’s decision to pull the U.S. out of the Trans-Pacific-Partnership Trade deal mean for U.S. trade?
Harrison: If most economists add up all the costs and benefits for export industries like Boeing or buying imported products at a lower price, then they would generally say that the benefits [of trade] are bigger than the costs. For the last seven years, people have thought that more trade was better. Donald Trump’s decision last week to pull the U.S. out of the Trans-Pacific Partnership is considered a radical departure from the last seven years. Why does Donald Trump believe that it is important to change course? He is representing those workers who have been hurt by trade. The key states that contributed to his victory are traditionally known as the Rust Belt [what once served as the hub of industry in America] — Pennsylvania, Ohio, Michigan, Wisconsin. There you will find a large group of workers who previously worked in manufacturing sectors that have been declining, like steel and automobiles. Trade has hurt workers in those sectors, and those workers supported Trump in his bid for president and his anti-trade stance.
Wharton Global Youth: In your opinion, will a decreased focus on U.S. trade protect American workers and American invention and innovation?
Harrison: It probably won’t protect American innovation and invention. America is best at producing the very high-tech, innovative things like designs for new smart iPhones and new software. Uber, for example, is a great America innovation, as is Google and other things related to the Internet. America is also a big innovator in the pharmaceutical industry, where we come up with new medicines to cure diseases, or in the high-tech sector, where we create new semiconductors. All those areas are where America is at the forefront. We’re designing the driverless cars of tomorrow, the new communication tools, the new medicines. That is what our country is really good at and what we are exporting to the rest of the world. We’re not as good at manufacturing. Let’s take the latest pharmaceutical drugs. Our scientists, researchers and technicians come up with new formulas to treat diseases. They don’t make the pharmaceuticals themselves, but instead have them made in a country like India. We then bring the made products back and engage our best designers, marketers and salespeople to sell it. In my opinion, protecting our manufacturing base is not going to push our innovation because our innovative strength is not in that area.
What President Trump is proposing [for trade and manufacturing jobs] is a short-term solution. It might work in the short run. But in the long run, if we want to create high-paying jobs, the solution is more painful and more expensive. It requires sending more people to college, training them to work in tomorrow’s high-paying sectors like health care, innovation and the Internet/digital economy. We need better schools. [More people] need to have access to those schools. And possibly we need a much more aggressive distribution from the one-percenters [the wealthiest 1% of people in the U.S.] to the rest of the country.
Wharton Global Youth: What opportunities do global markets give us and what does President Trump’s decision mean for students and workers in other countries?
Harrison: A lot of economists are worried about the direction the new economy is taking. The rest of the world has billions of people. When any company wants to grow, essentially that company has to look outside our borders because that is where the growth opportunities are going to lie. We need to be part of the global economy. Students in the rest of the world also want to have a better life tomorrow and want more opportunities. Their countries are helping reduce poverty rates in India and China by allowing those countries to engage in global trade. The only countries that have caught up with the rich countries are Singapore, Hong Kong, China — the Asian countries. The way those students created a better life for themselves is by engaging in the global market. If we turn our back on the rest of the world and take an America-first stance, we are blocking off those opportunities for the rest of the world.
Wharton Global Youth: Any other key takeaways from the changing trade and manufacturing landscape?
Harrison: I believe that President Trump ran a successful campaign because he highlighted the fact that in this new digital economy where America’s strength is moving away from manufacturing, a lot of people have been left behind. America really needs to help those people left behind through things like stronger educational opportunities. We need to help people hurt by globalization, and we can’t continue to pretend that there are only winners in the new economy. I disagree with how we fix the problem. But it does exist.
Related Links
- Radio Times: Free Trade Agreements and the Candidates
- New York Times: Trump Abandons Trans-Pacific Partnership
- Wall Street Journal: Trump Withdraws U.S. from Trans-Pacific Partnership
- New York Times: Trump’s Trade War May Have Already Begun
- K@W: Why the TPP Withdrawal Could Be a Boon for China
Conversation Starters
Is Donald Trump’s decision to pull the U.S. out of the Trans-Pacific Partnership considered radical? Why or why not?
Where do you personally stand on the position of trade? Do you believe we should limit our involvement in the global economy to protect manufacturers or should we embrace global trade and expansion?
Ann Harrison says, “We need to help people hurt by globalization, and we can’t continue to pretend that there are only winners in the new economy.” What does she mean by this? How does she propose that we help them? For more insight on this topic, listen to the Radio Times podcast found in your Related Links tab to the right of this article.
Trump’s decision is radical because it is taking a vital part of our trade system out. Also, most of the people that voted for him were affected by trade in someway, so it doesn’t make sense that he would back us out of it. Trump also represents people in the trade which stirs up arguments. It’s just being sort of hypocritical.
I personally think that trade is a necessity for the United States to take part in. Without trade we wouldn’t have as many products that we do now at the same cost, like Harrison said, an iPhone would be 2,000-3,000 dollars where if we had it imported we would be able to buy them for 700-800 dollars. I think that we should promote trade with other countries because everyone can offer something to another in return. Every single country specializes in something else and it makes it important to be able to take advantage of that.
Trump’s decision to pull the U.S out of the Trans-Pacific Partnership is considered radical because it deviates drastically from US policy over the last seven years. While he is representing those who have been hurt by trade, his jump from past trade practices to the new, present ones makes his decision radical.
I believe that the deal could both be a positive and a negative. This trade deal has to be part of a bigger plan for the US. It keeps consumers able to purchase more but that also means there’s less jobs. To compensate, I believe the government should create an incentive for companies that choose to operate in the US.
His decision to pull us out of the Trans Pacific Partnership Trade deal means that we will have more jobs here in America, however will affect us a little because we depend on foreign goods a lot more than we should. . Usually we have to outsource our jobs and that is a problem. However by pulling the jobs back in more factories and other businesses will pop up and our economy will slowly but surely grow and benefit us and not other countries, more people here will have jobs. So his decision will ultimately benefit us in the long run. .
What I think she means is that we need to help people that are hurt by trading with different countries because if we want to create high paying jobs, and to stay in the United States. How she proposes we do that is start by protecting our manufacturing base is not going to push our innovation because our innovative strength is not in that area. Also to give high school students a better education if they can’t afford to go to college.
I believe we should limit our involvement in the global economy. America needs to start making its own products again. Limiting trade would give people more jobs too.
Where I stand on trade is fair trade. I do not believe that we should be isolated from the rest of the world because that will do more damage than anything else. But I do believe that we need to bring manufacturing jobs here. And also our Trade deficits with some of these countries around the world are crazy. If you look at literally anything here in the U.S. it’s made in China or another Asian country. I think about half of the stuff should switch over to be made in the U.S. like T-shirts or hats, something that we can afford to spend a little more on not iPhone’s or computers.
Reading this article we can see that the decision to pull us out of the deal is considered radical but it is something that we had to do. We want to create jobs in America. I think we should start worrying about ourselves before we worry about other countries. I feel as though it will be a good decision in the long run for the United States of America.
I believe we should definitely lower global trade. As a country I believe we rely on other countries to much to make our products. If something were to happen and we could not get imports then there is a chance that our economy would struggle because we would not know to support ourselves.
The decision is great because it would keep jobs in the United States, and not in other countries. Donald Trump thinks that if we trade to much we will lose jobs, and also people in the United States will not have a job. The government should not pass any of these laws for a while.
The decision is great because it would keep jobs in the United States, and not in other countries. Donald Trump thinks that if we trade to much we will lose jobs, and also some people in the United States will not have a job if this law was passed The government should not pass any of these laws for a while.
Personally, I believe that the country should be trading with as countries and as many people as possible. We should limit our international trade to a certain degree but not completely. Making our trade industry bigger will only benefit our economy and open new markets that would not be there if we did not embrace global trade and global expansion of our companies.
Knowing about our jobs in America, We should have made this deal. Jobs in America today are becoming more and more scarce every year. On the other hand, we need these goods from other countries like China. In America i think this is good we made this deal because this will create more jobs in america if we do not have thing China would usually make, like phones and cars.
I believe that pull back on trade was a good and bad idea as in not only will it bring jobs back to America it will also hurt the economy. When other countries do good Americans also do good because when other countries have money they have the ability to then buy things of ours they need which allows the spread of wealth to continue. Its good for some reasons though more Americans get to have these jobs that we were paying other people across the world to do.
This addresses the comments made by Dylan, Anthony, Josh, Nick, and Ian
I believe that trade is a necessity. Most economists say that trade is fundamentally beneficial. As someone who took Macroeconomics course last year, I can explain why trade is helpful for America.
Every country specializes in certain areas and lacks in other areas. For example, the Ivory Coast specializes in cocoa production; in fact, it is one of the largest producers of cocoa in the world. However, it doesn’t have the capability to produce goods such as fuel and rice. What trade does is allow a country like the Ivory Coast to enjoy the best of both worlds. With trade, the Ivory Coast can continue to focus its attention on what it is good at producing (i.e. cocoa) and still get access to the goods that it can’t produce (i.e. rice, fuel, etc.). Basically, trade allows a country to consume beyond its “production possibilities curve”.
I know this is not an easy topic to understand. Hence I urge you to read this article published by The Economist: “Why trade is good for you” (http://www.economist.com/node/605144). As the article summarizes, at its core, global trade allows every country to enjoy the goods that it wouldn’t otherwise be able to, thus raising every country’s standard of living. This certainly stands true for America. We are not very good at manufacturing, but we are the best in technology and innovation. If we were to stop trade, we would have to sacrifice some of our ability to innovative / create new technologies in order to produce enough manufacturing goods to fulfill our country’s needs in that area. Since resources are limited, we will not be able to do both to the fullest at the same time. In essence, we would get less of each (and probably end up paying higher prices as well), thus lowering our overall standard of living. Of course, we must make smart trade deals. However, trade, at its core, is fundamentally beneficial.
I understand the point being made about the loss of jobs by the various commenters. There are so many people who have lost their jobs and are struggling because of increased globalization. I completely understand this viewpoint and if I were personally affected in a negative way by trade, I may not have spoken so highly in favor of trade. However, I do not believe that isolationism is the correct answer. Why should we force ourselves to unnecessarily produce things that we are not good at producing and can get from elsewhere? Why should we have to force all of us to pay more money for these goods if we were to manufacture them here? This does not sound like the right thing to do. Also, we must remember that trade is a two-way street. If we stop importing goods, other countries will retaliate and stop importing our products and services. This means our exports will fall. It will be detrimental for our economy if we are not able to export to rapidly growing overseas markets, such as Asia. I understand that jobs are the issue, but we should not make the country as a whole suffer. If we limit trade, we are eventually going to lower our standard of living, which will hurt us in the long-run. When we focus on being efficient and innovative, we will have long-term growth.
I think we should adopt the following win-win solution over the win-loss solution of limiting trade. We should retrain our workers who have lost their jobs to trade so that they can get new jobs. This way, people will get better jobs and the country as a whole can still reap the benefits of trade. Yes, this isn’t going to be easy, but I feel it is necessary. Moreover, such worker retraining will eventually be needed. Relatively low skilled jobs are the ones that are being lost to foreign countries because of trade. Soon, robots will also be taking over many of the low end jobs and stopping trade will not be of any help when this happens. Retraining people and modifying our education system to account for these changes is not going to be easy and, in the short term, it is going to be painful for those who continue to lose their jobs to trade. However, in the long-run, retraining is the best option for our country and for our people to a shot at living a successful life.
I think trade is something the US has to be a part of. The decision to pull us out of TPPT could result in more jobs for America. Lessen our involvement in global economy. We need to quit relying on other countries to make our products. If we want them we can make them.
Personally, I agree that in today’s world, countries are interconnected and trade is necessary for economic development. However, I think it’s crucial to identify the cost-benefit balance and extent to which trade is fair and sustainable. Although overall trade may bring prosperity, it definitely needs collective action from the state to address the social costs (negative externalities) that are not counted in private costs such as unemployment, economic inequality, and environmental destruction.
As Harrison mentioned in the article, we should pay attention to the vulnerable groups who are at loss in the globalization and trade, namely the low-skilled workers being replaced by cheap labor abroad as the multi-national companies outsource their production. Aside from unemployment, I would argue that globalization also created widening economic inequality and unequal political representation in a restructuring society. Although in economists’ view this societal transition is temporary adjustment and in long term everyone will get better off through retraining and entering other jobs, it’s proved that “some groups will necessarily suffer long-term losses in income from free trade” (Stopler & Samuelson 1941). As capital returns exceed labor returns, this sector restructuring inevitably leads to redistribution of wealth from the laborers to corporations. In his book The Globalization Paradox, Rodrik discovers that the freer the trade, the higher the ratio of redistribution-to-efficiency, which is now $50 income loss (potentially to low-income groups) to $1 net gain for the United States. This startling fact proves the necessity of counter-redistribution policy such as progressive tax system or education and healthcare programs to prevent the economic gap from continuing to widen as the wealth compounds.
What’s worse, income inequality significantly correlates with unequal political representation. Research shows that senators are most responsive to affluent constituents’ views but show no responsiveness to low-income constituents (Bartels 2008). This disparity in responsiveness indicates a vicious cycle of ignoring the poor’s needs and exacerbating poverty. As such, I propose that the government should support the development of labor unions in order to grant workers more bargaining power. Leveraging on North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP), businesses have limited the bargaining power of labor unions and even undermined the sovereignty of other countries through suing governments against policies that are protective of citizens but in conflict with business interest (Sanders 2015; Gonyea 2013). So to pragmatically solve the problems of manufacturing base shrink, we also need to ensure equal political representation of different classes to prevent the top 1% from gaining enormous political power to manipulate the tax system in a self-serving manner.
At the same time, we can see that trade not only affects the manufacture base in the U.S., but also brings detrimental effect worldwide to those third world countries. As corporations are profit-oriented, thus the severe competition with each other and ambition to win customers incentivize them to prioritize minimizing private production costs over social responsibilities. As the documentary The True Cost explains, unfettered free trade provided the businesses with cheap labor force in the third world countries who are desperate for a living. In order to retain the factories from relocating to other countries, the local governments competed to demand lower wages at the expense of workers and the environment. Labor exploitation and deteriorating working conditions became commonplace, while untreated production waste contaminated water and air, which in turn destroyed human health. Without appropriate regulations, the corporations took little responsibility for such great negative social externalities to the source countries. With the social costs being externalized, the consumers took cheap products for granted and businesses reaped high profits. Nevertheless, rapid climate change, pervasive health issues, and human rights violations are visualizing costs to all human beings who share the same planet. The signs are alarming enough for collective intervention to promote a fair trade environment and reject the race to the bottom. Potential solutions range from internalizing social costs through imposing a minimum wage and tightening regulations on natural resources extraction and waste disposal.