International Trade and American Jobs

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International Trade and American Jobs

• Douglas J. Young
• Professor of Economics
• Montana State University

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Does Trade Cause Job Losses?

• Popular Idea
• If we made it ourselves, more people would be
  employed.

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Trade in Economic Theory

• Jobs are Created in Export Industries and Lost in
  Import-Competing Industries
• Overall, No Long Run Effect on Employment or
  Unemployment

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Does a Trade Deficit Cause Job Losses?

• Trade Deficit Imports gt Exports
• Common Sense More Jobs are Lost to Imports than
  are Gained from Exports
• Economics No, Even a Trade Deficit Does Not
  Affect Employment.

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Balance of Payments

• Current Account Exports minus Imports plus
  Miscellaneous
• Capital Account Foreign Investments in US minus
  US Investments Abroad
• Current Account Capital Account 0

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US Balance of Payments, 2007Billions
http//www.bea.gov/international/xls/table1.xls,
October 30, 2008
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Current Account Details(Billions)
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Capital Account Details(Billions)
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When Foreigners Invest in the US, They

• Provide Funds to Capital Markets to Finance
• New Structures and Equipment
• New Housing
• And/Or
• Build Factories Themselves
• Either Way,
• Domestic Investment Increases

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I S Capital Account

• I Investment in Domestic Structures and
  Equipment
• S Domestic Savings
• Capital Account Inflow of Investment Funds from
  Abroad

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US Saving, Investment, and Net Foreign Investment
into the US
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Foreign Investment Creates Jobs

• in Construction and Other Industries that Produce
  New Structures and Equipment

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Two Theories

• Common Sense
• Trade Deficit gt
• Fewer Jobs and/or
• Higher Unemployment

• Economic
• Trade Deficit gt
• Change in Mix of Jobs, but
• No Change in Employment or Unemployment

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US Labor Market
Source US Bureau of Labor Statistics
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Unemployment and Trade
US BLS and US BEA
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Conclusion

• Economic Theory Wins!
• Yes, trade changes the mix of jobs in the
  economy.
• But there is no evidence that trade reduces
  overall employment or increases unemployment.

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So, Is Everything Peachy-Keen?

• Trade Deficits are a Symptom of Low Saving in the
  US
• Some Industries (Workers and Businesses) are Hurt
  by Trade

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Thanks for Your Time!

• This presentation is available at
• http//djyoung.org
• Click on Papers
• Email djyoung_at_montana.edu