According to one estimate, between 2001 and 2015—a period that covers the “China shock”—expanding imports hurt about 312,000 workers a year on average. This number is large. It calls for a meaningful response, even if it represents under 2 percent of the total number of periods of involuntary unemployment experienced by workers during those years. Almost 6 million manufacturing jobs were lost in the United States between 2000 and 2010. This loss was overwhelmingly caused by two recessions as well as relatively faster productivity growth, but trade did play a role. The correct policy answer to job losses resulting from trade is having in place adjustment programs that are equal to the task of meeting dislocations. Two great strengths of the US economy are its flexible prices and flexible labor market. It would be a mistake to introduce rigidities through excessive protection that would make US industries less competitive when what is needed are more effective, fully funded, labor programs.
- Date Posted:
- April 4, 2023
Make no mistake: the economic consequences of this lurch toward confrontation are as far-reaching as they are severe. As global supply chains become less elastic, less efficient, and more costly, their ability to counteract inflationary pressures will decline. Central banks will thus be left to manage price growth alone, by suppressing excess demand. The combination of higher interest rates and heavy sovereign-debt burdens will compound fiscal pressures. Though lower inflation could ease those pressures, interest rates are likely to remain elevated for a while, especially if suboptimal global economic trends and secular forces like population aging cause supply-side conditions to deteriorate. Nor is the downward trend in productivity growth – which has become particularly pronounced in the last decade – likely to be reversed in a fragmented global economy with barriers to technology development and diffusion.