BROOKINGS: U.S. cities should not abandon trade

04/08/2016

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April 8, 2016 BY: AMY LIU AND JOSEPH PARILLA

The steep decline of manufacturing jobs, stagnant wages, and rising anger among working class voters about their economic future has sparked a growing skepticism about globalization, launching the country into a weeks-long back and forth about the merits of trade for the U.S. economy.

Nevertheless, U.S. city and regional leaders should not back down on trade and global engagement. The global economy is hyperintegrated—enabled by technology, air and freight networks, and complex supply chains more widespread and faster growing than new trade agreements. Local leaders have a responsibility to help their firms and workers navigate, not ignore, the benefits and drawbacks inherent in globalization. They should continue to embrace a bottom-up competitiveness agenda that includes helping firms and institutions tap global demand and investment while arming workers with the skills to adjust to new realities.

Trade is typically discussed at the national level, but its origins and impacts are intensely local. The 100 largest metro areas—places such as Detroit, Houston, and Wichita—are at the epicenter of the global economy. Positively, these metro economies generate the bulk of the nation’s exports (86 percent), attract the vast majority of jobs from foreign direct investment (74 percent), and draw most of the foreign students investing in an American education (85 percent). These benefits result from unique pools of suppliers and skilled labor, global infrastructure networks, and higher education institutions that strengthen core industries and support jobs, often good jobs that offer a wage premium for workers.

Cities also bear the brunt of the risks of greater global integration. The recent decision by Carrier to close its production plant in Indianapolis demonstrates the cost to hundreds of well-paid blue-collar workers when firms feel the pressures of the global marketplace. Meanwhile, Carrier plans to retain engineers and marketing professionals in the city, another indication of the premium placed on high-skilled labor. New research by a team of economists led by MIT’s David Autor brings this phenomenon into sharp relief. The authors find that China’s insertion into the global trading system was disastrous for certain U.S. labor markets that specialized in manufacturing. Their notable finding was not that manufacturing jobs disappeared, but the expected movement of dislocated workers into new industries never materialized. What economists call the “adjustment costs” of trade may be much greater and longer lasting than previously theorized.

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