Gary Burtless, Robert Z. Lawrence, Robert E. Litan, and Robert Shapiro,
“Globaphobia. Confronting Fears About Open Trade” (1998)

We have written this book to demonstrate that the fear of globalization — or ‘globaphobia” — rests on very weak foundations. …

First, the United States globalized rapidly during the golden years before 1973, when productivity and wages were growing briskly and inequality was shrinking, demonstrating that living standards can advance at a healthy rate while the United States increases its links with the rest of the world….

Second, even though globalization harms some American workers, the protectionist remedies suggested by some trade critics are, at best, short-term palliatives and, at worst, harmful to the interests of the broad class of workers that they are designed to help. Sheltering U.S. firms from imports may grant some workers a short reprieve from wage cuts or downsizing. But protection dulls the incentives of workers and firms to innovate and stay abreast of market developments. As a result, its benefits for individual workers and firms are often temporary. Indeed, protection invites foreign exporters to leap trade barriers by building plants in this country — as foreign manufacturers of automobiles, automobile parts, film, and other products have done. We are not criticizing this result: the United States has a strong national interest in attracting foreign investors, who typically bring technologies and management practices that ultimately yield higher wages and living standards for U.S. workers. But the movement to the United States of foreign companies and their plants simply underscores how erecting barriers to imports is often fools’ gold for those who believe that protection will permanently shelter jobs or the profits of employers.

Third, erecting new barriers to imports also has an unseen boomerang effect in depressing exports. . . . While higher barriers to imports can temporarily improve the trade balance, this improvement would cause the value 0f the dollar on world exchange markets to rise, undercutting the competitive position of U.S. exports and curtailing job opportunities for Americans in export industries. Moreover, by increasing the costs of input (whether imported or domestic) that producers use to generate goods and services, protection further damages the competitive position of U.S. exporters. This is especially true in high-tech industries, where many American firms rely on foreign-made parts or capital equipment. The dangers of protection are further compounded to the extent it provokes retaliation by other countries. In that event, some Americans who work in exporting industries would lose their jobs, both directly and because higher barriers abroad would induce some of our exporting firms to move their plants (and jobs) overseas. In short, protection is not a zero-sum policy for the United States: it is a negative sum policy.

Fourth, globaphobia distracts policymakers and voters from implementing policies that would directly address the major causes of the stagnation or deterioration in the wages of less- skilled Americans. The most significant problem faced by underpaid workers in the United States is not foreign competition. It is the mismatch between the skills that employers increasingly demand and the skills that many young adults bring to the labor market. For the next generation of workers, the problem can be addressed by improvements in schooling and public and private training. The more difficult challenge is faced by today’s unskilled adults, who find themselves unable to respond to the help wanted ads in daily newspapers, which often call for highly technical skills. It is easy to blame foreign imports for low wages, but doing so will not equip these workers with the new skills that employers need. The role of government is to help those who want to help themselves; most important, by maintaining a high-pressure economy that continues to generate new jobs, and secondarily, by facilitating training and providing effective inducements to displaced workers to find new jobs as rapidly as possible.

Fifth, Americans in fact have a vested interest in negotiating additional reductions of overseas barriers that limit the market for U.S. goods and services. These barriers typically harm the very industries in which America leads the world, including agriculture, financial services, pharmaceuticals, aircraft, and telecommunications.

Sixth, it cannot be stressed too heavily that open trade benefits consumers. Each barrier to trade raises prices not only on the affected imports but also on the domestically produced goods or services with which they compete. Those who would nonetheless have the United States erect barriers to foreign goods — whether in the name of “fair trade,” “national security,” or some other claimed objective — must face the fact that they are asking the government to tax consumers in order to achieve these goals. And Americans must decide how willing they are to pay that tax. By contrast, lowering barriers to foreign goods delivers the equivalent of a tax cut to American consumers, while encouraging U.S. firms to innovate. The net result is higher living standards for Americans at home.

Finally, to ensure support for free trade, political leaders must abandon the argument traditionally used to advance the cause of trade liberalization: that it will generate more jobs. Proponents of freer trade should instead stick with the truth. Total employment depends on the overall macroeconomic environment (the willingness and capacity of Americans to buy goods and services) not on the trade balance. . . . We trade with foreigners for the same reasons that we trade among ourselves: to get better deals. Lower trade barriers in other countries mean better jobs for Americans. Firms in industries that are major exporters pay anywhere from 5 to 15 percent more than the average national wage. The “price” for gaining those trade opportunities — reducing out own trade barriers — is one that Americans should be glad to pay.

In spite of the enormous benefits of openness to trade and capital flows from the rest of the world and notwithstanding the additional benefits that Americans would derive from further liberalization, it is important to recognize that open borders create losers as well as winners. Openness exposes workers and company owners to the risk of major losses when new foreign competitors enter the U.S. market. Workers can lose their jobs. This has certainly occurred in a wide range of industries exposed to intense foreign competition — autos, steel, textiles, apparel, and footwear.. . . In some cases, workers are forced to accept permanent reductions in pay, either in the jobs they continue to hold in a trade-affected industry or in new jobs they must take after suffering displacement. Other workers, including mainly the unskilled and semiskilled, may be forced to accept small pay reductions as an indirect effect of liberalization. Indeed, the job losses of thousands of similar workers in traded goods industries may tend to push down the wages of all workers — even those in the service sector — in a particular skill category.

We acknowledge that these losses occur…. Nonetheless, we believe the nation has both a political and a moral responsibility to offer better compensation to the workers who suffer sizable losses as a result of trade liberalization. . . . Decent compensation for the workers who suffer losses is easily affordable in view of the substantial benefits the country enjoys as a result of open trade. Liberal trade, like technological progress, mainly creates winners, not losers. Among the big winners are the stockholders, executives, and workers of exporting firms such as Boeing, Microsoft, and General Electric, as well as Hollywood (whose movies and television shows are seen around the world). There are many millions of more modest winners as well, including the workers, retirees, and non-working poor, who benefit from lower prices and a far wider and better selection of products.

One problem in making the case for open border is that few of the winners recognize the extent of the gains they enjoy as a result of free trade. The losses suffered by displaced workers in the auto, apparel, or shoemaking industries are vividly portrayed on the nightly news, but few Americans realize that cars, clothes, and shoes are cheaper, better made, or more varied as a result of their country’s openness to the rest of the world. Workers who make products sold outside the United States often fail to recognize how much their jobs and wages depend on America’s willingness to import as well as its capacity to export. People contributing to a pension hind seldom realize that their returns . . . are boosted by the fund’s ability to invest overseas, and almost no borrower understands that the cost of a mortgage or car loan is lower because of America’s attractiveness to foreigners as a place to invest their money. All of these benefits help improve the standard of living of typical Americans, and they can be directly or indirectly traced to our openness. They are nearly invisible to most citizens, however; certainly far less visible than the painful losses suffered by workers who lose their jobs when a factory is shut down.