Doug Irwin

Free Trade Under Fire

The United States tends to import labor-intensive products, such as apparel, footwear, leather, and goods assembled from components. Comparable domestic industries in these labor-intensive sectors tends to employ workers who have a lower than average educational attainment, and who therefore earn a relatively low wage. For example, in 1999 average hourly earnings of Americans working in the apparel industry were 36 percent less than in manufacturing as a whole. Average hourly earnings were 30 percent lower in the leather industry and 23 percent lower in the textile industry than in the average manufacturing industry.

By contrast, the United States tends to export more skill-intensive manufactured products, such as aircraft, construction machinery, engines and turbines, and industrial chemicals. Workers in these industries earn relatively high wages. For example, in 1999 average hourly earnings in the aircraft industry were 42 percent above the average in manufacturing, 8 percent higher in industrial machinery, and 24 percent higher in pharmaceuticals. One study reports that even 'after being adjusted for skill differences, wages in export-intensive industries are 11 percent above average, whereas wages in import-intensive industries are 15 percent below average.'

As a result, any policy that limits overall trade by reducing both exports and imports tends to increase employment in low-wage industries and reduce employment in high-wage industries. Restricting trade would shift American workers away from things that they produce relatively well (and hence export and earn relatively high wages in producing) and toward things that they do not produce so well (and hence import and earn relatively low wages in producing) in comparison with other countries. Employment gains for the low-wage textile machine operators in the factory mills would be offset by employment losses for the high-wage engineers in aircraft and pharmaceutical plants.

Some people justify import restrictions as a way of slowing the movement of workers out of industries in decline because of structural shifts in the economy. And while trade barriers can raise employment (or slow the decline of employment) in industries that compete against imports, two points should be recognized: jobs are 'saved' in the industry only by destroying jobs elsewhere, as we have already seen, and protection is a costly and inefficient jobs program. The Multifiber Arrangement for example, is a costly method of keeping more people employed in the textile and apparel industry than would otherwise be the case. The consumer cost per job saved as a result of trade restrictions can be calculated by dividing the total cost of protection to the consumer (due to the higher prices that they pay) by the number of jobs that protection maintains in the industry. In the textile and apparel industry, for example, trade restrictions cost consumers about $24 billion annually and prevent the loss of roughly 170,000 jobs in the industry. To preserve one job in the textile and apparel industry, therefore, consumers pay $140,000 a year. This is a stiff price for society to pay merely to keep workers employed in relatively low-wage occupations. The cost per job saved is even higher in the industries typically associated with high-paying manufacturing jobs, such as the machine tool industry ($350,000 per job) or the sugar industry ($600,000 per job).