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Lower prices, lower wages
Trade is politically unpopular. It shouldn’t be. But voters aren’t wrong. Trade is unpopular because the way we allocate its benefits is wrong. International trade has not helped the average American. Prices for many things are lower than they would be if we made them here, but wages have stagnated while the top of the pyramid has grown wealthy. International trade helps ordinary citizens of a country only if it raises their standard of living. Otherwise, the trade does not deserve political support.
We are not a manufacturing country anymore. The “good union job” is disappearing. US Manufacturing employment, as a percentage of non-farm payroll, started falling in 1953, but the decline as a percentage of itself has accelerated. From 1953 to 1971, the percentage of non-farm workers in manufacturing fell by 25%, from 32% to 24%. But from 1971 to 2010, that percentage fell by nearly two thirds, from 24% to 8%. Manufacturing jobs were how the middle class became the middle class. Trade killed those jobs, and while we are tempted to blame the Chinese for our feckless response, our politics is where we should be looking for help.
Understanding Comparative Advantage
International trade reflects the law of comparative advantage. The law is difficult to verbalize so it is almost always “explained” by an…