Transcript Trading Places

TRADING PL ACES
THE EFFEC TS OF FREE TRADE AG REEM ENTS
IN US AND ABROAD
ON THE AGENDA
• Manufacturing Job Losses are a current hot topic in the political realm. The blame for these
losses often falls on Free Trade Agreements. This presentation will explore the causes of US
manufacturing job losses over the past several decades and examine the impact FTA
agreements have had on the US Economy.
• The US job market has evolved as manufacturing workers seek employment in new industries.
We will examine the new employment outlets for displaced workers and compare two
different types of communities impacted by the shift in the labor market.
• Less developed countries have an incentive to be averse to free trade in the short-run. We will
explore why a country’s level of development plays an important role in policy.
FTA AND MANUFACTURING
• There is a common misconception in the US that the country is too reliant on imports and
that manufacturing as an industry is in decline.
• The US historically holds about a 20% share of the world’s manufacturing output. A figure that
has remained relatively stable for the past 40 years.
• As of 2013, the US had a $61 billion trade surplus with FTA partners.
• Manufacturing companies that produce exports pay wage rates that are 18% higher than
producers of domestic only goods. These companies benefit from free trade and can afford to
pay their employees a higher salary
• As a result, FTA have not hurt manufacturing production overall. However, there has been a
significant decline in employment by the sector and a shift in the types of goods produced
MANUFACTURING JOBS DECLINE
EMPLOYMENT BOUNCES BACK
WHERE DID ALL OF THESE FOLKS GO?
https://www.bls.gov/opub/ted/2014/ted_20140728.htm
EXPLORATION OF LOSS OF JOBS IN
TEXTILES & APPAREL
• NAFTA is often blamed for the demise of manufacturing jobs in the US apparel industry, but in
reality it just accelerated an inevitable process. Textile operations are highly dependent upon nonspecialized labor. As a result, it was more efficient for apparel to be manufactured by a country with
a cheaper labor force (Mexico).
• In some textile sectors (such as yarn production), NAFTA accelerated investment in technology and
mechanization needed to reduce reliance on labor.
• However, many rural towns were heavily reliant upon local textile mills as job providers. These
communities were heavily impacted (population decline, unemployment loss, lack of capital
investment).
• Key question: what can be done to revive these communities and help displaced workers find new
jobs?
SCHOOLS ATTRACT NEW INVESTMENT
• Job growth has remained strong in college towns, even those where the predominant industry
was manufacturing
• College towns are attractive to companies investing capital in a new area because of the
school’s educational and knowledge resources
• Companies can rely on an educated work force and partner with schools on training programs
and research
• Martinsville’s Economic Development efforts have focused on establishing higher education
centers to help attract companies to the area.
• The textile industry is an interesting example of how trade agreements impacted
manufacturing jobs. However, it is just part of the evolution of the world economy. Some
communities were negatively affected by NAFTA, but the US economy as a whole has
benefited through free trade with Mexico.
LEVEL OF DEVELOPMENT
• While the US and other developed countries are made better off through free trade, there are
examples of protectionists policies that have helped less developed countries (LDCs).
• LDCs that hope to become more industrial would have a difficult time competing in a free
global marketplace. International firms with experience, expertise, and technology would enter
the market and keep prices low. These low prices would prevent the entrepreneurs in LDCs
from competing (it takes time to set up operations and gain efficiencies). Their cost structures
would just be too high initially.
• However, if an LDC imposed tariffs on that good, prices in the local marketplace would
increase --- enabling the goods to be produced domestically.
• Note, this option is worse for consumers in the short run.
• However, as the local businesses begin to reduce their cost structures through experience, the
government should eliminate tariffs to reduce prices for consumers. At this point, the domestic
producers would be able to compete at market prices.
SOURCES
• http://www.epi.org/publication/manufacturing-job-loss-trade-not-productivity-is-the-culprit/
• http://republic3-0.com/how-u-s-manufacturing-jobs-depend-on-trade-agreements/
• http://www.tradingeconomics.com/united-states/unemployment-rate
• https://www.bls.gov/opub/ted/2014/ted_20140728.htm
• https://www.ers.usda.gov/topics/crops/cotton-wool/background/us-textile-and-apparelindustries-and-rural-america.aspx
• http://www.wsj.com/articles/theres-an-antidote-to-americas-long-economic-malaise-collegetowns-1481558522
• http://internationalecon.com/Trade/Tch100/T100-4.php