Megan McArdle, one of my favorite economics writers, has an interesting blogpost which she in some ways echoes of my current Washington Examiner column. McArdle cites a paper by three eminent economists which suggests that opening American markets to trade with China was a bad idea. She concedes that that has resulted in much lower prices for many goods. “Cheap imports are great,” she writes. “But people value work, and the ability to build some sort of reasonably predictable, stable economic future, more than they do cheap flat-panel televisions.”
That’s right, and it echoes my column’s point that 2016 presidential candidates of both parties are failing to show how their economic policies can help people, especially people without high-level skills, to find satisfying work. But I think the example of “cheap flat-panel televisions” is a bit of a cheap shot. Chinese imports, and increasingly those from even lower-wage industries, have lowered the price of clothes drastically, as a visit to any Wal-Mart or one of its competitors will demonstrate. And clothes are as important a consumer good for modest-income people as televisions.
McArdle goes on to argue that competition from low-cost Chinese imports has resulted in negative changes in employment patterns of vast magnitude and that, for reasons she doesn’t explore in this piece, the U.S. economy has done a worse job than in the past of “reabsorbing displaced labor.” I would advance as one reason, though far from the only one, the sharp increase in the Social Security disability rolls, which has enabled people who have lost their jobs to stay in place, albeit with a low income, rather than to move and seek work in faster-growing parts of the nation.
And I think she is on to something very important when she writes that the experience with Chinese imports won’t be repeated “unless another 1.3- billion person country can move half of its countryside into the industrial core over the course of a few decades.” There’s only one other such country, of course, India, whose economic growth is not nearly as dependent as China’s has been on manufacturing. So, as she writes, “future trade movements will be on much smaller scales, meaning that the U.S. economy will probably be better able to handle the shock.”
How is this relevant to the 2016 presidential campaign? Donald Trump’s appeal arises in large part from his denunciations of free trade agreements and illegal immigration. Both of these phenomena have been massive over the past generation or so, but are unlikely to be as massive in the future. The huge surge of low-skill immigration, legal and illegal, from Mexico occurred between 1982 and 2007. There has been no net migration from Mexico since then, and there is no other country with such a large reservoir of potential immigrants with Mexico’s geographic proximity to the United States. Chinese imports have vastly increased since Deng Xiaoping started reforming the Chinese economy in 1978, and China has had annual double-digit economic growth or nearly that for just about the whole period. Now China is growing less rapidly (quite how much less no one is sure) and there aren’t nearly as many people left to move from the countryside to the industrial cities.
Tentative conclusion: Mexican immigration and Chinese imports have sharply disrupted American employment patterns over a long generation. But immigration and imports from those nations or from others aren’t likely to be as disruptive in the long generation now beginning. We have passed through, with some damage but overall still with positive growth, an economic transformation of a kind that has never happened before and will never happen again.
