Monday, 3 October 2011

Trade and the number of jobs

C. Fred Bergsten writes in the New York Times about the U.S. trade imbalance and the number of jobs in the U.S.:
BY virtually ignoring trade, President Obama and Congressional Republicans are missing a major opportunity to create jobs. The United States runs an annual trade deficit of about $600 billion, or 4 percent of our entire economy. Eliminating that imbalance would create three million to four million jobs, according to Commerce Department estimates, at no cost to the budget.
E. Frank Stephenson over at the Division of Labour blog responds,
Not so fast. There are (at least) two reasons why moving toward trade balance might not increase employment in the US. First, many imports are inputs to things that are produced here; making those imports more expensive might harm production of (and jobs making) the goods that use the imports as inputs. Second, the flip side of a trade deficit is net capital inflow which may create jobs by financing factories such as BMW in SC, Pirelli here in GA, etc. Hence, eliminating a trade deficit also means eliminating a net capital inflow and potentially harming job creation.
The basic point is that trade protection doesn't create jobs, all it will do is move jobs around in the economy. If measures are put in place to reduce the trade deficit, areas of the economy which benefit from these measures will grow and those which suffer will diminish. The net effect on jobs will approximate zero.

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