DON’T START THAT TRADE WAR

The examples and analyses in this chapter come from cutting-edge research conducted by the most respected departments of economics, yet the main conclusions may seem to put us at odds with decades of conventional wisdom.

First, the gains of international trade are fairly small for a large economy like that of the United States. Second, while the gains are potentially much larger for smaller and poorer countries, there is no magic bullet. Just as we saw in the chapter on migration that opening a border widely would not be enough to get everyone to move, removing trade barriers is not enough to ensure new countries can join the party. Declaring trade is free is not the magic bullet for development (or even for trade). Third, the redistribution of gains from trade has proven extremely tricky, and people negatively affected by trade have suffered, and are still suffering, a great deal.

Taken together, the exchange of goods, people, ideas, and cultures made the world much richer. Those lucky enough to be in the right place at the right time, with the right skills or the right ideas, grew wealthy, sometimes fabulously so, benefitting from the opportunity to leverage their special gifts on a global scale. For the rest, the experience has been mixed. Jobs were lost and not replaced. Rising incomes have paid for more new jobs—as chefs and chauffeurs, gardeners, and nannies—but trade has also created a more volatile world where jobs suddenly vanish only to turn up a thousand miles away. The gains and the pains ended up being very unequally distributed and they are, very clearly, starting to bite back at us; along with migration they define our political discourse.

So do protectionist tariffs help? No. Reintroducing tariffs now will not help most Americans. The reason is simple: one of our main argument so far has been that we need to worry about transitions. Many of those displaced by the China shock never really recovered because the sticky economy meant they could not move sectors or regions to get back on their feet, and the resources could not move to them.

But shutting off trade with China now will clearly create a new set of displacements and many of those new losers will be in counties we have not yet heard anything about, simply because they are doing just fine. Indeed, among the 128 products on which China announced tariffs on March 22 and April 2, 2018, the majority were agricultural: a.p.p. (apples, pears, and pork), rather than apps. US exports in agriculture have risen steadily over the last few decades (from $56 billion in 1995 to $140 billion in 2017). Today a fifth of US agricultural production is exported. And the biggest export destination is East Asia. China alone buys 16 percent of US agricultural exports.⁷⁴

The first-order effect of a trade war with China is therefore likely to be a loss of jobs in agriculture and in the industries supporting it. The US Department of Agriculture estimates that in 2016, agricultural exports were responsible for over a million jobs in the United States, almost three-quarters of which were in the nonfarm sector.⁷⁵ The five states with the largest share of agricultural employment are California, Iowa, Louisiana, Alabama, and Florida.⁷⁶ For precisely the same reasons people who lost their manufacturing jobs in Pennsylvania were not able to get other jobs near home, these agricultural jobs will not be replaced by manufacturing jobs in the region. And we know from everything we have seen in this chapter and the previous one that just as manufacturing workers did not move when their jobs were lost, farm workers would probably not move. Alabama and Louisiana are two of the ten poorest states in the United States,⁷⁷ and a trade war would throw them under the bus.

For the United States, a trade war would not be the end of the world as we know it. But while it may save some jobs in steel, it would likely cause significant new damage to others. The US economy will be fine. Hundreds of thousands of people will not.