About free trade

어제 아침 회사에서 몇몇 동료들에게 보낸 이메일인데, 여기에도 저장해둔다. 참고로 우리회사는 물류회사라 무역이슈가 좀 중요하긴 하다.

Trade issue has been controversial in politics this year. And trade deals, such as TPP and TTIP (a trade deal between US and EU), are important to UPS as well. So I personally have been following relating news. I just want to share recent in-depth articles about free trade, for your information.

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The Economist | Anti-globalists: Why they’re wrong, 10/01

The Economist | Free trade: Coming and going, 10/01

The Economist | Saving globalisation: The reset button, 10/01

Here’s my summary and comments following.

As long as I remember, when trade deals were made such as NAFTA and TPP, pundits expected that deals would help for corporations to source components more cheaply and gain foothold in the Chinese market by leveraging America’s technologies and brands around the world. But such optimism is rare in these days. In this election season, policy makers are against trade deals and many are even hostile to free trade.

So I wondered if free trade deals actually made American economy worse. When I limited the scope only into US trade balance and manufacturing job loss, the answer was ‘yes.’ First chart shows US trade balance with China and Mexico.

It also affected to low-skill labors. You can see below that US labor force participation rate dropped in the 21st century especially in low-educated workers.

Yet majority of economists argues that free trade is beneficial to overall economies over time in terms of efficiency and productivity, arguably in job market perspectives. The thing is that it is easy to spot the link between trade deals and job loss in manufacturing. In contrast, the efficiency and productivity part is linked with economy indirectly. But there are some supporting facts that exporting firms are more productive and growing faster. Wages for the jobs that depend on exports are higher on average by 10 %.

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And also protectionism hits harder to poorer people in the country. A study by Pablo Fajgelbaum of the UCLA, and Amit Khandelwal, of Columbia University, suggests that in an average country, people on high incomes would lose 28% of their purchasing power if borders were closed to trade. But the poorest 10% of consumers would lose 63% of their spending power, because they buy relatively more imported goods.

Source: Measuring the Unequal Gains from Trade

To sum up, free trade is not a deal to benefit all. Unfortunately, there are losers and winners in this game. (And I personally think that governments have some works to do in that.) It is true that free trade made a decline in manufacturing jobs especially in low-tech industry, but it force to firms to be more innovative in the way to spend more R&D and use of IT. Because of the enhanced efficiency and productivity from free trade deals, everyone will enjoy, mostly indirectly, benefits of the trade at the end of the day.

And I am proud that UPS is a key part of it!

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