Here’s a letter to Foreign Affairs.
Editor:
Lori Wallach’s “The Right Way to Balance Trade” (August 5) is a blizzard of blunders, not the least being her presumption that persistent trade deficits and surpluses prove that the global trading system is rigged or otherwise failing. Never does she bother to explain why, in our world where people aren’t confined to investing only domestically, countries with relatively better investment climates shouldn’t innocently and routinely attract capital away from countries with relatively poor investment climates. Just as better-run private companies persistently attract capital away from poorly run companies – and, hence, put that capital to better use – so, too, do better-run countries persistently attract capital away from poorly run countries (and, hence, put that capital to better use).
Ms. Wallach also is careless with facts. It’s true, as she complains, that the absolute number of U.S. manufacturing jobs in 2020 was lower than in December 2001, when China joined the World Trade Organization. But even if we grant, contrary to reality, that manufacturing jobs are better than non-manufacturing jobs, the absolute number of such jobs is an inappropriate measure; a more-appropriate measure is manufacturing jobs as a share of total nonfarm jobs. And on this measure, manufacturing employment as a share of total employment has fallen more slowly since China joined the WTO than it did earlier. In the 229 months from December 2001 through December 2020, manufacturing employment as a share of total employment fell at an average monthly rate of 0.151%, but in the 229 months just prior to December 2001, manufacturing employment as a share of total employment fell at an average monthly rate of 0.197% – faster than it has since China joined the WTO.*
Using Ms. Wallach’s simplistic method of inferring cause from correlation, it appears that China’s membership in the WTO slowed the loss of U.S. manufacturing employment.
Another fact is worthwhile to note: Ms. Wallach asserts, with no evidence, that U.S. trade deficits since China’s entry into the WTO pushed capital into wasteful speculation, resulting in “less financing available for the real economy.” Her suggestion is that the ‘real’ U.S. economy has been starved of capital. The evidence is unfriendly to her suggestion. The real size of the private nonresidential capital stock in the U.S. in 2024 (the latest year for which these data are available) was 55 larger than it was in 2001.**
It’s disappointing that Foreign Affairs published an essay so tendentious and economically uninformed.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030* I divided monthly figures on total manufacturing employment by monthly figures on total nonfarm employment, and then use Excel to calculate the average monthly rates of change for the period since China joined the WTO and for the same-length time period before China joined the WTO.
** I used this BEA data set – “Table 2.2. Chain-Type Quantity Indexes for Net Stock of Private Fixed Assets, Equipment, Structures, and Intellectual Property Products by Type: [Index numbers, 2017=100]” – and had Claude do the calculations.
