On the face of it, the numbers look grim. We have a $40 billion foreign trade gap (the difference between the mutual values of a country's imports and exports). Manufacturing jobs have crumbled, with 20 million lost since the 1970's. In China, one of our chief economic partners, average incomes have tripled over the past ten years, while at home median incomes have largely stagnated over that same period.
To see those figures it's easy to sympathize with the millions of Americans who argue that deals such as the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP) hurt domestic job prospects. Yet at the same time, economists are virtually united in their position that foreign trade is good for America and Americans.
In fact, as explained by J. Bradford Jensen, McCrane/Shaker Chair in International Business at Georgetown's business school, "I think most economists would argue for something very close to wide-open free trade."
Here are five of the biggest reasons why:
International trade theory is dominated by what's called comparative advantage, the ability of one country to produce certain skills or resources more efficiently than another. For example, a country with lots of natural gas or geothermal power has a comparative advantage in the electricity-heavy production of aluminum compared with someplace that has to import its energy sources.
Globally, the U.S. has a huge advantage in skilled and service-sector labor, thanks in part to its historic investment in education. By contrast, however, a strong economy and expensive currency makes domestic labor far more expensive than it is in most other parts of the world.
That puts America at a comparative disadvantage when it comes to any labor-intensive production, being unable to produce man-hours as cheaply as most other nations. From the perspective of an economist, then, the best solution is to get out of the way of that and let the market take its course.
"I think a good example," Jensen said, "is the apparel industry. The apparel industry is very labor intensive, and it's particularly low-skill labor intensive, so it doesn't require a lot of education."
"Textile and apparel used to be made in the Northeast," Jensen added. "Then it moved to the South, because wages are cheaper in the South. Then in the last 30 or 40 years that activity has moved to places like China and Bangladesh, where workers are very cheap. That is an activity that we don't do really any more in the United States, because there are workers in the world that are willing to do it for a lot less than workers in the United States."
The upshot is that global trade allows countries to do what they're best at, without money or time wasted on production that could be done more cheaply elsewhere.
4. Overall Wealth
Efficiency is a big deal to economists, because, they argue, that's how a country can maximize its overall wealth.
The idea is that countries do best when they do what they do best. An educated workforce can make and sell better, more high value products. It wastes human capital, say, to have a U.S. trained worker stitch t-shirts instead of learning graphic design, and limits growth by capping the textile industry to the number of American workers a company can afford.
Meanwhile, a Cambodian educated worker can make a comfortable living stitching t-shirts for the global market. It wastes human capital in Phnom Penh to force workers into graphic design positions for which they may not be well educated and limits growth by capping the local textile industry at the number of designers Cambodia's economy can produce.
In this example, both industries can maximize their wealth by taking full advantage of local talent.
"Having the opportunity to produce goods overseas, for a U.S. firm, can actually create more jobs in the United States because it allows the U.S. to specialize in certain things that we're better at, and outsource the things that can be done more efficiently," said Kyle Handley, a professor with the University of Michigan's Ross School of Business.
Consider, he suggested, Apple.
"Apple couldn't make the iPhone in the United States unless they wanted to charge, and I'm speculating here, three-to-four times as much as they're charging now," he said. "So if you think about it, that means there's lots of opportunities… for new firms. You think about people that are coming out of college and MBA students that want to start a new company, they probably can start that company with a lot less money invested and a lot less capital."
The result is increased business activity in both the import and export countries, and consequently greater overall wealth.
3. Greater relative wealth
In the popular indie film "Outsourced," there's a scene in which one of the Indian call center workers talks to an American customer looking to buy a bald eagle statue.
"I will give you the website of an American company that makes an eagle statue very similar to ours," she says, "only theirs is made 100% in America."
"Theirs is $212 more," she adds.
That is one of the key metrics that economists consider. The increased efficiency that comes from comparative advantage allows companies and countries to make products more cheaply, sometimes far more cheaply, and competing businesses can pass those savings on to the consumer.
The conclusion is that the health of an economy isn't simply a measure of how much individuals earn, but also their purchasing power.
"We think about individuals in the economy and basically how much can they get for the money that's in their pocket," Handley said. "There's two components to people's well-being: One is they need to have some disposable income, and the other is what can they buy with that."
As a result, the effects of global trade aren't always necessarily cut and dry. A trading gap, for example, doesn't just represent imports weighed against exports, but also money saved across the economy due to cheaper goods and services.
Further, even if the impact of a deal like NAFTA is to cut jobs and local incomes, the other side of the question is how that measures against purchasing power.
Oftentimes making the same product here in the United States would cost much, much more, which is why one analysis suggests that Donald Trump's proposed tariff plan would amount to a $6,112 per year tax on the average American household. So, again, even if local incomes go down, if prices drop faster, the average consumer may well be in a better position than before.
In the absence of trade, Handley said, "when you adjust people s wellbeing for the fact that things will be much more expensive, that they can't choose the item that might be the ideal fit for them, most people will be worse off. [Even if] some people might be better off because they might have a job that they otherwise would not have had"
2. The Export Economy
As we wrote recently, exports make up 14% of the American economy. That's a substantial number, and one which probably under-emphasizes the importance of this sector by the time you capture all of the infrastructure and downstream benefit of that business.
And what the United States sells tends to be high value. As opposed to commercial electronics and manufacturing, America exports products like airplanes, intellectual property (such as movies and pharmaceuticals), software design, financial and legal services, and business leadership.
"The kinds of things that we're good at, we export," Jensen said. "We run a trade surplus in services, and we specialize in those activities because the U.S. is a skill-abundant place and those activities are skill intensive."
"If you start to put up trade barriers then, yeah, we would have more apparel jobs. And we would have fewer financial services jobs, and everybody would be worse off. We would be worse off, and the other countries would be worse off. You can find some people who would be better off, because they would have those apparel manufacturing jobs, but it's not clear for how long even that would be true."
Capturing this export market brings more wealth to the United States. By encouraging a market with high-value jobs to grow, it allows Americans to pursue education and skill-up to those positions, ultimately getting better jobs than the ones sent overseas.
That's the idea, at least.
1. The failure of domestic policy
The average economist isn't blind to how foreign trade leaves some people behind, but such experts argue that this represents a failure of domestic policy.
From the macro perspective any system which makes the nation richer and reduces the price of goods is a boon to the economy overall. What follows next, the failure to distribute those gains effectively or help communities decimated by outsourcing, that has to do with national or even local economic decisions.
They argue that policymakers can address those issues through other means, and that to abandon global trade and its consequent benefits (wealthier companies, cheaper products) would be to effectively throw the baby out with the bathwater.
"The gains are not evenly distributed at all," Handley said. "So I can tell you that on average people will be better off, but there are going to be some people that are way better off and there's going to be other people that are going to be worse off."
But, he argued, "I think most economist would tend to look past the, 'Well let's reverse the very thing that caused that person to lose his job.' We want to use a different instrument to solve that problem."
Further, while economists recognize the harm done to struggling communities like the Rust Belt, they argue that many more people are better off because of trade. While those workers may not always recognize the connection between their standard of living and a deal like NAFTA, the benefits are there.