Is Free Trade More Beneficial?

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UPS CEO Scott Davis asserts that the U.S. must move quickly in approving free trade agreements because it will increase our competitiveness and boost job creation.  As my economics students are aware, one of Mankiw’s key principles is that “free trade can make everyone better off”.

Certainly, free trade enhances efficiency an promotes economic growth.  By eliminating trade barriers with countries, we will see an increase in U.S. exports and that will create jobs.  Consumers will benefit as weaker domestic companies succumb to lower priced foreign competitors.  As we enjoy lower prices, this can boost purchases of additional industries, thus indirectly creating more jobs.

However, the key word is “can”, since everyone will not be better off with free trade.  In particular, industries with high paying, relatively low skill jobs will continue to disappear and be replaced with occupations that require greater skill sets.  This is an example of comparative advantage where the richer, advanced country (U.S.) will see an increase in higher-paying, complex jobs, while the smaller country (Panama) will start to benefit from lesser-skilled jobs in manufacturing.

The effects of comparative advantage will benefit certain segments of the population over others.  College degreed workers in math and science will reap the fruits of increased exports in high-skilled sectors, while non-college degreed individuals will see their wages dwindle further.  The West and Northeast where technology and educational outcomes are higher should see greater benefits than the South and the Midwest.

Therefore, should we promote free trade?  In my opinion, the answer is yes.  It is too late to take a step back and reverse the tide of globalization.  Placing restrictions on trade will only lead to lower living standards for everyone.  Rather than trying to prevent the inevitable, policy analysts need to focus their energies on helping all Americans make the transition to the global economy.

That will take a two-pronged approach where technical and vocational occupations should be emphasized in the short-term, and a stronger commitment to K-12 school systems in the long-term.

There are certain good paying  jobs that will never be outsourced, such as plumbing, welding, and auto mechanics.  Without the proper foundation in high school, it is just too difficult for many to transition to the math and science disciplines where the high paying jobs are.  Therefore, we should encourage more toward this area instead of pushing them into institutions of higher learning.

As for our public school systems, we need better communication between administrators, teachers and parents.  School administrators and teachers need to inform parents of the importance of developing strong study habits at an early age.  When they are in high school and have not been studying an average of two hours a night on their homework, it is unlikely that behavior will change by that time.  That type of work ethic is key to mastering the rigorous subjects that will be highly valued in the global economy.

By lowering the bar and coddling our youth, we are only hurting them later.