The Free Trade & Globalization Debate

From Vox Day: The Price of Free Trade

In the context of this debate, ‘free trade’ includes exports, offshoring, and insourcing & outcsourcing (of labor), or just simply globalization. The problem with macro economics is with the exception of the fundamentals (like comparative advantage), there is seldom a consensus, unlike subjects such as mathematics and most physics, where everyone can agree on a set of fundamental laws that govern the universe or a set of axioms and postulates that build the foundation of mathematics. The problem is Vox Day doesn’t offer any concrete evidence or statistics to support his anti-free trade position, leaving the research to the reader.

I can understand the ethnocentric argument, but the macro argument against free trade is not as persuasive. If free trade were as bad as its detractors insist it is, it would have been ‘phased out’ by the natural evolution of free market capitalism, but its persistence lends credence to its success.

The major benefit of free trade is it allows America to export inflation, resulting in cheaper goods here.

Another benefit is globalization reduces the likelihood of war, as economically interdependent countries would have more to lose by going to war with each other:

Using these dyad-years, McDonald analyzed the behavior of every country in the world for the past 40 years. His analysis showed a negative correlation between free trade and conflict: The more freely a country trades, the fewer wars it engages in. Countries that engage in free trade are less likely to invade and less likely to be invaded.

For example, by becoming a global exporter, Japan’s economy boomed after WW2:

Same for Germany. Choosing trade over war definitely paid off.

On the other hand, a counter-example where Russia invades Ukraine despite the presence of a McDonald’s franchise .

A I discuss here, there is evidence that H1b visas don’t suppress employment and wages among native-born Americans. During strong economic times, companies add both native and foreign born workers instead of only adding only foreign workers, as shown by how the visa cap is closely correlated with the economic cycle.

Vox writes:

The USA historically enjoyed its fastest periods of economic growth under protectionist, restricted-immigration periods.

But correlation is not causation – protectionism wasn’t the cause of strong economic growth, it may have merely coincided with it. It was much easier to grow the economy decades ago, as it was much smaller and the ‘low hanging’ fruit had not been picked. The US population growth rate is half it was a generation ago, and foreign markets offer new avenues of growth.

Also, manufacturing was already in deceline in America, before NAFTA. From Wikipedia:

The rate of job loss due to plant closings, a typical argument against NAFTA, showed little deviation from previous periods.[13] Also, US industrial production, in which manufacturing makes up 78%, saw an increase of 49% from 1993-2005. The period prior to NAFTA, 1982-1993, only saw a 28% increase

Although globalization and free trade may lead to the closure of some jobs and the displacement of labor, immigrants and foreign companies also create jobs in America. For example, foreign auto brands building plants in America:

And immigrants create companies, which leads to job creation – as many as 10 million jobs created within the fortune 500:

The lump of labor fallacy is the belief that there is a fixed amount of labor to go around, that once taken no new jobs are available.

That probably cancels out some or all of the jobs lost to globalization.

A report by Brookings sheds some light on the issue:

According to one study, 25.3 percent of the
technology and engineering businesses launched in the United
States between 1995 to 2005 had a foreign-born founder. In
California this percentage was 38.8 percent. And in Silicon Valley,
the center of the high-tech industry, 52.4 percent of the new
tech start-ups had a foreign-born owner. According to the study’s
count, “Immigrant-founded companies produced $52 billion in
sales and employed 450,000 workers in 2005.”4

Notable examples include Ebay, Yahoo, and Google.

However, All Net Jobs Growth Since 2007 Has Gone to Immigrants

From November 2007 through November 2014, the number of employed native-born Americans has decreased more than 1.45 million, while the number of employed immigrants has risen by more than 2 million (as the immigrant population grew rapidly, too), according to data compiled by the Department of Labor’s Bureau of Labor Statistics.


In December 2007 the number of foreign-born workers was 22,810,000. By April 2015, the number had increased to 24,819,000 or a net job growth of more than 2 million.

For native-born workers that number in December 2007 was 123,524,000 by April of this year the number of employed native-born Americans was 123,769,000 or a net job growth of 245,000.

However, a user on Reddit counters, arguing that immigrants and natives fared about the same, but it seems worse for natives because of the starting point chosen:

Seems strange to pick January 2007, the top of a bubble, as a starting point. But even if we do, employment is basically unchanged for the native born (-0.04% change for the native-born), while is actually twelve times worse, comparatively, for immigrants. (-0.5% change). So even in the most data-abusive case, this argument is wrong according to the tables they present, in Table 1. (The math there is simply take the employment rate over the total population minus not-in-labor-force)

If we pick the BLS dates of the recession (12/07-6/09), then immigrants were left significantly worse off. Unemployment for natives was down 4.8%, but was down 5.1% for immigrants. Immigrants suffered worse during the recession. Perhaps that helps explain why the flow of Latino immigrants to the US decreased during the recession.

If we take the time period of interest as when TARP went into effect until now (the time frame everyone is interested in), we see that from the first big asset purchase (November 2008) until last month, the unemployment rate for natives changed by 122558/(208817-79056) – 122326/(199401-68621) = 0.9%, while for immigrants the unemployment rate changed by 25108/(40027-13491) – 22283/(35427-11583) = 1.1%. So at 44% vs 56% of the overall change, I’d say both “groups” broke about even since the recovery. Immigrants and natives shared equally in job gains. The posted article is incorrect.

But this all rests on a model where “taking jobs” is the sole function of immigration. That model is a lousy one. Immigrants start more business, are responsible for more new employment, and are over-represented among startups and the Fortune 500 by a wide margin. The new share of available jobs is highly attributable to immigrants. We fear-monger at our peril.

So you have evidence on the pro and con side that conflict with each other. Make of it what you will. But I think the pro-globalization argument wins, at.

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