… after this thorough, careful, economically informed, and fact-filled take down by Scott Lincicome. Scott has produced here a definitive refutation of the many fallacies of economics and history that regularly pour forth from the keyboards and mouths of modern American protectionists.
Here are a few slices from Scott’s masterpiece (but do read the whole thing):
Modern globalization is also about a lot more than just trade in goods. As I explain in the book’s new introduction, services trade has exploded in recent years—especially online (hence, our new video on the gaming economy)—and it powers some of the biggest and most important companies in the world, many of which are American (and which fuel the United States’ trade surplus in services, if you’re into that kind of thing). Globalization is surely also about ideas and culture, whether it’s medical research or food or film or fashion or, yes, even video games.
Cass calls all this stuff “ridiculous” and asserts that real globalization actually is just governmental agreements and trade balances because that’s the “what the debates are about” (in Washington, natch). But it’s also surely because talking about NAFTA and the goods-trade deficit serves his interests: It sounds scary and conspiratorial, plays into long-standing biases against foreigners and positive-sum interactions, and ignores all the parts of globalization that are obvious American success stories or enjoyed by normal people every day. It’s far easier to sell tariffs and other government restrictions on global commerce when they’re couched as protecting American communities from shadowy “globalist” agreements that have “crushed” them, instead of what—as former GOP Rep. Jeb Hensarling notes in his essay—conservatives have known protectionism to be for decades: big government taking from one American and giving to his well-connected neighbor (and harming the economy along the way).
I guess I should thank Cass for proving our point.
Of course, trade agreements and trade balances and tariffs are surely also a part of the globalization debate today, so that’s why our project has essays and blog posts and articles on all of it—and a few more on the way. If Cass would like to challenge any of that stuff, he’s welcome to do so and I’ll even host. His subsequent policy points, however, don’t exactly inspire confidence in his future success.
…..
The U.S. economy has been on a tear in recent years (see here for more), and median American wages and incomes have been increasing steadily since the “hyperglobalization” era began in the 1990s. The vast majority of American workers are also satisfied with their jobs, which—contra the populist narrative—have decent benefits and aren’t less secure “gig work” arrangements. And according to brand new research from the American Enterprise Institute’s Scott Winship, moreover, the rosy figures above likely understate the wage gains for American workers since the 1990s—when NAFTA, the WTO, and the “China Shock” supposedly “crushed” them—by a significant amount.
The gains get even better, Dan Griswold details in his project essay, when you add in “nonwage benefits—bonus pay, health insurance, paid leave, contributions to retirement savings, etc.—that have made up an increasing share of total compensation in recent decades.” Griswold’s essay, which argues against the kind of economic nostalgia Cass peddles, adds that the U.S. middle class has been “shrinking” only because American households have been getting richer (again adjusting for inflation), and points to improvements in both the average Americans’ consumption of basic necessities and all sorts of non-economic areas—workplace safety, female and minority participation in the formal economy, life expectancy, infant mortality, food supply, education, environmental quality—versus our less globalized past. Marian Tupy’s essay on our modern, globalized “superabundance”—along with Cato’s broader Human Progress site—adds even more.
Elsewhere, economist Jeremy Horpedahl finds that younger generations are today building as much wealth as their older counterparts.
….
Yet even for goods trade and American manufacturing, Cass is mistaken. First, the U.S. manufacturing sector is far from “eviscerated.” As Grabow details in his essay and as we’ve discussed, the United States in 2022 ranked second behind China in global manufacturing output at almost $2.7 trillion, greater than the next four countries (Japan, Germany, South Korea, and India) combined. The United States also is among the world leaders both in output per worker and in various forms of complex, capital-intensive manufacturing, such as motor vehicles, aerospace, and defense goods. Both aggregate industrial output and capacity have hovered at or near record highs for years now, though such data aren’t ideal—in part because they actually understate American manufacturing prowess by lumping in low-margin, labor-intensive, or shrinking industries (paper, tobacco, apparel, etc.) with ones that actually matter for national security, such as the three above and several others (metals, medical equipment, energy, chemicals, pharmaceuticals, etc.) There are arguably some weak spots and surely some market-oriented tax, trade, immigration, and regulatory policies—along with non-economic stuff like defense procurement—that Washington could and should implement to improve the U.S. industrial base, but portraying the sector as “eviscerated” is ludicrous.
American manufacturing employment has indeed declined, but this trend long predates NAFTA, China’s admission to the WTO, or any other common protectionist villain—and it hasn’t really accelerated in recent years. According to GMU’s Don Boudreaux, in fact, the average monthly decline in U.S. workers in manufacturing as a percentage of total nonfarm employment was, from its peak in November 1943 through May 2000 (when China got permanent trade status) 0.158 percent. From June 2000 through October 2024, the monthly average decline was just 0.163 percent—just a hair more. (And if you move the deadline to December 2001 when China joined the WTO, modern manufacturing job destruction is actually slower than the historic average—0.166 percent to 0.143 percent.)
…..
More important than these basics, however, is the critical fact that American manufacturing today greatly benefits from—and indeed depends on—modern globalization and the services jobs that Cass seemingly wants us to ignore. As international trade economist Faria Kamal just documented, around half of all U.S. imports are “industrial supplies and capital goods that are used as intermediate inputs by manufacturers,” and U.S. manufacturers that both export and import are responsible for half of all American exports and 40 percent of imports, “underscoring the complementarities between exports and imports in U.S. production.”
…..
The tight relationship between imports and exports—well-known by trade experts but ignored by modern mercantilists—is a big reason why broad-based tariffs like the ones Cass defends are so foolish as an industrial strategy. In fact, Kamal notes, “the dramatic rise in U.S. import tariffs between 2018 and 2019 lowered exports and employment in the U.S. manufacturing sector.” Oops.
…..
American investment abroad also confounds simplistic trade deficit moaning. As recent research has noted, in fact, if you included U.S. multinationals’ non-U.S. sales of goods made overseas and their U.S.-origin services and intellectual property embedded in those products, the U.S. trade balance would shrink substantially.
…..
Wanting people to stay in yesterday’s jobs isn’t just bad economics; it’s also weirdly paternalistic, as shown by Cass’ open disdain for our gamer Jalon Az. A young woman of color living in Los Angeles, Jalon started out in film production but moved into gaming and streaming because of the pandemic and because it paid better and offered her a better quality of life than her old job. She’s now an independent entrepreneur and has made a career out of entertaining thousands around the world. Even if you’re an oldster like me, Jalon’s life and career are pretty neat, yet Cass dismisses them instantly as neither a “compelling” story nor one that has “anything to do with globalization” more broadly.
DBx: Wishing everyone this holiday season peace and free trade.
