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  • Economic ProspectsU.S. Trade Policy and the Jobs Crisis
  • Robert Pollin (bio)

Amid the ongoing employment crisis in the United States, there are growing demands across the U.S. political spectrum for the U.S. to become more aggressive about closing the roughly $700 billion annual gap between the imports we purchase and the exports we sell on global markets. There is no doubting the severity of the jobs crisis. The U.S. economy shed over eight million jobs between 2007–2009, and we would need to create eighteen million new jobs to bring the economy to a 4 percent unemployment rate by the time President Obama is up for re-election in November 2012.

How much, by itself, could a change in our global trade policies—including especially tariff restrictions on imports or lowering the value of the dollar relative to other currencies—accomplish toward pushing the unemployment rate down to around 4 percent? My own answer is: not very much. At the same time, Buy America provisions can sometimes, but not always, make sense, as one part of a broader set of industrial policies, especially on behalf of building a clean-energy economy. More generally, the issues at play entail several twists and turns, at times involving a most undesirable situation of pitting the well-being of U.S. workers against those in other countries.

Tariffs and a Dollar Depreciation are Weak Policy Tools

The U.S. has been importing more than it exports for thirty-four straight years. In 2007, just before the Wall Street collapse and recession, the trade deficit amounted to about 5 percent of GDP. During the 2008–2009 recession, the trade deficit did fall along with overall spending both in the U.S. and throughout the world, though it still averaged a substantial 3.8 percent of GDP. Let's say the U.S could reduce its imports by 10 percent and increase its exports by the same amount. Those changes by themselves would [End Page 82] generate about four million new jobs in the U.S., a bit more than 20 percent of the total needed to bring the economy to around 4 percent unemployment by 2012. A high proportion of these new jobs generated by reducing our trade deficit would be in manufacturing, thus delivering major benefits to the hard-hit major manufacturing regions of the country, such as Ohio and Michigan.

A large number of analysts, including many progressive economists, think that we could indeed deliver major employment benefits in the U.S. through a shift in our trade policies. One approach would be simply to impose new tariffs on imports coming into the U.S. This would increase the prices of imported goods in the U.S., making them less attractive to consumers. Another would be to lower the value of the dollar by, say, 20 percent relative to the euro, Japanese yen, and Chinese yuan. Assuming this could be accomplished, the cheaper dollar would mean that the prices of foreign-made goods would rise in the U.S. market, while the prices that foreigners would pay for U.S. products would fall. This should discourage U.S. imports and encourage exports. However, in my view, neither raising tariffs nor lowering the value of the dollar, on its own, is likely to produce any significant job gains for workers in the U.S., either in the short or long run. What are the problems with imposing tariffs and lowering the value of the dollar?

The issue is more straightforward in the case of tariffs. The tariffs would have to be set relatively high, like the 10 percent surcharge imposed by President Nixon in 1971, in order to seriously discourage U.S. consumers and businesses from purchasing imports. But setting a high tariff barrier against foreign producers seeking access to U.S. markets would no doubt provoke other countries to retaliate, which in turn would reduce our exports as well as our imports. The net result could still be some gain in overall U.S. employment, since the U.S. market is larger than those of the countries we trade with. But the benefits would not likely be nearly...

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