Posted by: CS | July 11, 2012

Even balanced trade between the West and Rest threatens your job

Earlier I explained how the US/EU’s half-trillion-dollar-a-year trade deficit with China has destroyed millions, and probably not less than several tens of millions, of jobs in the West.

But even if trade were balanced, the West suffers job losses as a result of trade with Third World nations where many factory workers still still earn no more than a dollar or two a day.

How so?

Because whereas importing a pair of jeans with a price at the factory gate in China of less than five dollars displaces several hours of a US garment worker’s labor, the countervailing export of five dollars worth of Hollywood movies or Canadian oil or gas generates no more than a minute or two of North American employment.

The reason for that lies in the ten- to twenty-fold difference in wages that still exists between the West and the Rest, a circumstance that David Ricardo, author of the principle of comparative advantage, did not envisage when considering trade in wine and cloth between England and Portugal.

True, if David Ricardo’s theory of comparative advantage were applicable, which it isn’t, then US garment workers displaced when China took half the US textile and garment market between 2001 and 2012 might find employment as Hollywood actors, camera operatives or make-up artists.

But of course they won’t, anymore than significant numbers of the Detroit machinists who lost their jobs as China and other Third World nations took most of the North American car parts industry will become computer programmers or IT workers. For one thing, most software and IT jobs have already gone to India, China and other countries where brains as good as those available in North America can be hired for less than one tenth the price.

For most of those driven out of the labor market by cheap Chinese textiles, electronics, computers and car parts, that’s it: they’ll never get a job comparable to the one they lost and many will not get a job at all.

So much for the benefits of global free trade via the miracle of comparative advantage so often touted by liberal economists with Nobel prizes.

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