How Free Trade Agreements Are Good for Us

by Kindred Winecoff

Eyes on Trade reports:

A poll conducted by the Pew Research Center in November has found that the public holds deep misgivings about the WTO and trade agreements like NAFTA.

In an atmosphere of 10 percent unemployment, about 52 percent of those surveyed believe that "free trade" agreements lead to job losses, while only 13 percent believe that the agreements create jobs. The remainder of those surveyed didn't have an opinion, refused to answer, or thought trade agreements didn't affect employment.

Only 11 percent of respondents believed that free trade agreements make the wages of Americans higher, but 49 percent believed that trade agreements reduce American wages.

Let's parse this a little bit. First of all, did NAFTA (and other trade agreements) cause job losses? Of course they did! The whole point of an open trading system is that goods will be produced where they can be made most efficiently. That means that when a trading system moves from [more] closed to [more] open, some jobs will be lost in traded sectors that face new competition. So the 52% of Americans that believe that free trade leads to job losses are correct.

However, only 13% understand that FTAs also create jobs. Even worse, only 11% of Americans think that trade improves their wages. This is absurd. In real terms, trade increases the purchasing power of Americans so profoundly that they (apparently) can't even comprehend it. Do they know how much an iPod would cost if entirely produced in the U.S.? Or how much computers would be? Or apparel?

The interesting thing to me is the cognitive dissonance at work; on the one hand, if Americans are losing jobs because of trade, presumably it's because workers in other countries are working for cheaper wages, cheap enough that it offsets differences in productivity. But if that's the case, then as a matter of definition the purchasing power (i.e. real wages) of Americans is higher if we're importing consumer goods from countries that can produce them more efficiently.

So yes: Americans have a partially correct understanding of trade dynamics, but it's for all the wrong reasons.