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Careful policy-making harnesses the job-creation powers of freer trade

This is a difficult subject to tackle in simple terms. There is strong evidence that trade boosts economic growth, and that economic growth means more jobs. It is also true that some jobs are lost even when trade is expanding. But a reliable analysis of this poses at least two problems.

First, there are other factors at play. For example, technological advance has also had a strong impact on employment and productivity, benefiting some jobs, hurting others.

Second, while trade clearly boosts national income (and prosperity), this is not always translated into new employment for workers who lost their jobs as a result of competition from imports.

The picture is not the same all over the world. The average length of time a worker takes to find a new job can be much longer in one country than for a similar worker in another country experiencing similar conditions.

In other words, some countries are better at making the adjustment than others. This is partly because some countries have more effective adjustment policies. Those without effective policies are missing an opportunity.

There are many instances where the facts show that the opportunity has been grasped — where freer trade has been healthy for employment. The EU Commission calculates that the creation of its Single Market means that there are somewhere in the range of 300,000–900,000 more jobs than there would be without the Single Market.

Often, job prospects are better in companies involved in trade. In the United States, 12 million people owe their jobs to exports; 1.3 million of those jobs were created between 1994 and 1998. And those jobs tend to be better-paid with better security. In Mexico, the best jobs are those related to export activities: sectors which export 60 per cent or more of their production, pay wages 39% higher than the rest of the economy and maquiladora (in-bond assembly) plants pay 3.5 times the Mexican minimum wage.

The facts also show how protectionism hurts employment. The example of the US car industry has already been mentioned: trade barriers designed to protect US jobs by restricting imports from Japan ended up making cars more expensive in the US, so fewer cars were sold and jobs were lost.

In other words, an attempt to tackle a problem in the short term by restricting trade turned into a bigger problem in the longer term.

Even when a country has difficulty making adjustments, the alternative of protectionism would simply make matters worse.

 
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