Rising Tide: Is Growth in Emerging Economies Good for the United States?

by Lawrence Edwards, Robert Lawrence

Overview

In 1963, John F. Kennedy said that "a rising tide lifts all the boats. And a partnership, by definition, serves both parties, without domination or unfair advantage." US international economic policy since World War II has been based on the premise that foreign economic growth is in America's economic, as well as political and security, self-interest. The bursting of the speculative dot.com bubble, slowing US growth, and the global financial crisis and its aftermath, however, have led to radical changes in Americans' perceptions of the benefits of global trade. Many Americans believe that trade with emerging-market economies is the most important reason for US job loss, especially in manufacturing, and is detrimental to American welfare and an important source of wage inequality. Several prominent economists have reinforced these public concerns.

In this study, Lawrence Edwards and Robert Z. Lawrence confront these fears through an extensive survey of the empirical literature and in depth analyses of the evidence. Their conclusions contradict several popular theories about the negative impact of US trade with developing countries. They find considerable evidence that while adjusting to foreign economic growth does present America with challenges, growth in emerging-market economies is in America's economic interest. It is hard, of course, for Americans to become used to a world in which the preponderance of economic activity is located in Asia. But one of America's great strengths is its adaptability. And if it does adapt, the American economy can be buoyed by that rising tide.

Product Details

ISBN-13:	9780881325003
Publisher:	Peterson Institute for International Economics
Publication date:	10/15/2010
Edition description:	New Edition
Pages:	176
Sales rank:	855,123
Product dimensions:	5.90(w) x 8.90(h) x 1.10(d)
Age Range:	18 Years

About the Author

Robert Z. Lawrence was a senior fellow and also the Albert L. Williams Professor of Trade and Investment at the John F. Kennedy School of Government at Harvard University. He served as a member of President Clinton's Council of Economic Advisers from 1999 to 2000. He held the New Century Chair as a nonresident senior fellow at the Brookings Institution between 1997 and 1998.

Lawrence Edwards is a professor at the School of Economics, University of Cape Town, and research associate at the South African Labor and Development Research Unit (SALDRU) and Policy Research on International Services and Manufacturing (PRISM). His research interests focus on the effects of international trade on labor, determinants of trade flows, and trade policy.

Table of Contents

Preface xiii

Acknowledgments xix

Introduction 1

The Public's Concerns: Jobs 4

The Economists' Concerns: Welfare and Inequality 6

Study Findings 10

Study Outline 13

Scope of the Study 26

I Trade and Jobs: Exploring the Public's Concerns 29

1 Trade and (Total) Jobs 33

Arithmetic versus Behavior 34

Trade Agreements 42

Fiscal and Macroeconomic Policies 42

2 Imports and Lost Jobs and Wages 45

Imports and Gross Job Losses 47

Imports and Specific Wages 52

Implications 54

3 "Good Jobs"-Trade and US Manufacturing Employment 57

Closing of the US Labor Market 60

Manufacturing Employment: Tracking the Decline 63

Explaining Deindustrialization 67

Did the Manufacturing Trade Deficit Play a Large Role in Manufacturing Employment Losses? 79

Offshoring 84

Conclusions 84

II Competitiveness, Welfare, and Inequality: Exploring the Concerns With Detailed Data 87

4 Do Developed and Developing Countries Compete Head to Head? 91

Export Overlap 94

Technological Sophistication 103

Price Dispersion by Technology Classification 115

Intermediate Inputs versus Finished Products 118

The Question of Quality 120

Conclusions 122

Appendix 4A Quality Measurement 125

III Trade and Welfare: Exploring the Economists' Concerns 133

5 Developing-Country Growth and US Welfare 135

Theory, Foreign Growth, and Welfare 136

Hicks' Conjecture 139

Gains from US Trade with Emerging-Market Economies 149

6 US Welfare and the Trade Balance 153

The Trade Deficit 154

Correcting for the Trade Deficit 157

Graphical Analysis of the Relationship between Terms of Trade and Trade Balance 162

Welfare 165

7 Oil 171

Oil Price Fluctuations and the US Economy 172

Explaining the Recent Oil Price Boom 174

The Future 179

Conclusions 183

IV Trade and Wage Inequality: Exploring the Economists' Concerns 185

8 Developing-Country Trade and US Wages: Theoretical Perspectives 187

Restrictive Assumptions: Nonspecialization and Perfect Labor Mobility 190

Other Theories 195

9 Trade and the US Skill Premium 199

Recent Developments 202

Studies of Recent Data 210

Analysis of Prices 212

Conclusions 218

Appendix 9A Are Developing-Country Manufactured Imports Intensive in Unskilled Labor? 221

Appendix 9B Measurement Error in the Price Data 227

Appendix 9C Isolating the Role of Trade with Mandated Wage Regressions 231

10 Conclusions and Policy Implications 235

What Do These Findings Imply for Policy? 238

Conclusions 251

References 253

Index 269

Tables

3.1 Share of employment in manufacturing, 1973-2010 67

3.2 Growth of employment, output, and labor productivity, 1960-2007 69

3.3 Manufacturing employment content of the manufacturing trade deficit, 1990, 2000, and 2010 83

4.1 Export similarity indices for manufactured goods, ranked by similarity with high-income OECD countries in 2006 98

4.2 Cumulative shares of manufactured exports to the United States relative to China, 2006 98

4.3 Average unit values relative to OECD exports to the United States and aggregate US exports, ranked by price relative to the OECD countries in 2006 101

4.4 Lall (2000) technology classification of exports 105

4.5 Share structure of US manufacturing imports by technology classification, 1990 and 2006 106