Globalization Is Alive, Well, and Changing

“It’s undoubtedly true that international trade, like all forms of market competition, disrupts some American companies and workers that, through government protection, formerly had the U.S. market to themselves. However, the economic case for free trade remains rock solid. American consumers (who are also American workers, by the way) gain from new access to goods and services at lower prices and in greater varieties. These gains come not only from foreign-made items but also from similar domestic ones that are now forced to compete with imports on price and quality. Studies show that trade’s “consumer surplus” is far more significant than a few cents on the proverbial cheap T-shirt. Recently, for example, several economists have found that falling prices caused by Chinese imports into the United States during the 2000s generated hundreds of thousands of dollars in consumer benefits for each American job potentially displaced by the China Shock—the equivalent of giving every American “$260 in extra spending per year for the rest of their lives.” Similar gains occur outside the United States: European consumers, for example, save €60 billion per year (about $64 billion) from lower tariffs resulting from the European Union’s entry into the WTO. Studies also uniformly find that these benefits—again contrary to the conventional wisdom—tend to disproportionately aid the poor and the middle class, who have tighter budgets and concentrate their spending on tradable sectors like food, clothing, footwear, and consumer electronics.

The consumer gains from trade are a big reason why Americans today work far fewer hours to own more and better essentials than at any prior time in history. Dartmouth economist Bruce Sacerdote finds that lower-income Americans’ overall consumption (adjusted for inflation) increased by 62 percent to 164 percent between 1960 and 2015, not fully accounting for improvements in quality. In other words, poorer Americans today can consume about twice as many goods and services as their 1960 counterparts, and expanded international trade is undeniably a big reason why.

Additionally, domestic companies and farmers gain financially from exporting their products”

“American companies also gain from foreign direct investment”

“the supply chain crisis? Another miss. For starters, multinational corporations and consumers have been adjusting their practices—diversifying suppliers, building inventories, investing in new capacity, altering spending patterns—since COVID first hit. Keeping trade and investment lanes free from government interference helps facilitate this adjustment. Just as important, there’s scant evidence that reshoring supply chains would help the country withstand future economic shocks. Two recent studies (one from the OECD and another from German research network CESifo) found, for example, that an economic shock abroad would hit a “decoupled” U.S. economy just about as hard (in terms of stability or welfare) as our current, globally integrated one. Any meager benefits, moreover, would come with major costs: Insulation from foreign shocks makes a nation more susceptible to domestic shocks (say, a freak ice storm in Texas) and intensifies any resulting pain because local supply chains adapt more slowly than global ones.”

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