The conclusion of a recent study concerning Biden’s trade proposals and state economic development is really important. It looked at one rural region economy in Virginia. It concluded there is an important link between U.S. trade policy and state economic development. The bottom line is there is a federal need to support rural communities and workers. Do not try to coerce foreign countries. That does not work. But Biden’s “worker-centric” policy will not be enough to get trade on a better track. A bolder approach is needed.
Here is a summary of that study that appeared just recently:
Unsurprisingly, Americans have complicated views on trade. Although a majority of voters see free trade as a good thing, barely one-third believe that it creates jobs or lowers prices.
Part of what made the surge in Chinese exports so painful for American workers was that many of them lived and worked in industry towns. When manufacturing jobs in those towns disappeared in response to rising import competition, it wasn’t just factory workers who suffered: everyone else did, too. Consider Martinsville, a small town in southern Virginia that is part of a manufacturing belt that stretches through North Carolina and into northern Georgia, Alabama, and Mississippi.
The Biden administration should focus on the consequences of job losses rather than their causes.
When considering how to promote job creation in distressed regions, it is important to acknowledge that most of the U.S. jobs that were lost to import competition (or to automation) are not coming back. The China trade shock ended almost a decade ago.
The Biden administration should instead try to help communities such as Martinsville thrive. Doing so will require ingenuity and experimentation. Federal officials should give their local and state counterparts wide latitude to pursue policies that are right for the places they serve. Conventional approaches won’t necessarily be the most effective.
Take tax incentives, for example, which officials often use to entice businesses to move to their states or municipalities. Economist have found that although such measures expand output in targeted industries, they appear to do little to raise local living standards. And for each job they create, such incentives impose costs that are nearly ten times as high as those of some other options for creating employment, such as redeveloping defunct industrial sites known as brownfields.
So what actually works? Evidence shows that active labor-market programs, designed to help young and disadvantaged workers succeed in the labor market, are a good bet.
Helping left-behind regions should be a core goal of Biden’s administration. But trying to undo three decades of structural change in the global economy isn’t the right way to get there.
Biden and his team need to be clear-eyed about what trade policy can and cannot do to help workers hurt by globalization. The damage has been done, and free trade isn’t going anywhere. Protectionist measures and narrow attempts to placate labor unions will do little to help workers who are already hurting or to help others avoid a similar fate.
Better to help the unemployed get back on their feet.
“Trade Wars & Globalization (Proposals for Biden).” Foreign Affairs (Special Issue) (May / June 2021). See second article — “Can Trade Help Workers.”