The True Cost of U.S. Free Trade: Wages Shrink Across The Board [View all]

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http://blogs.reuters.com/great-debate/2015/04/09/does-the-u-s-pay-too-high-a-cost-for-free-trade-in-the-tpp-pact/

Does the U.S. pay too high a cost for free trade?

by Charles R. Morris

Free trade is an American mantra. The Obama administration’s commitment to winning “fast-track” status for its cherished Trans-Pacific Partnership trade agreement is part of that tradition. But growing evidence shows that granting full trading privileges to low-income countries on the make is usually costly to the United States. (snip) Recent research helps distinguish between trade and offshoring patterns that have the mutual benefits — and those that don’t. When the trade or offshoring partner is another high-income country, U.S. wages tend to increase. But when its with low-income countries, U.S. wages decline, particularly for unskilled or medium-skilled workers.

These wage effects are not just in manufacturing, but in the same job categories of other industries. Manufacturing generally has higher pay scales than services. Yet as increased imports and offshoring put pressure on manufacturing jobs, there is a domino effect as displaced workers move into lower-paid services. Wages shrink across the board.

The pressure for lower wages when importing from low-income nations has a far greater effect than repercussions from offshoring. It is most striking when China is the partner. For every 10 percent increase in Chinese imports, U.S. wages across the affected jobs fell by 6.6 percent. In almost all cases, the wage reductions hit low-wage workers hardest, particularly non-high school graduates.

snip

It’s high time that predatory competitors like China are treated with judicious doses of their own medicine. China is not included in the Trans-Pacific Partnership, but its rapid economic progress is a blueprint for every aspiring developing nation. Only when the United States is prepared to ensure fair treatment for its own companies, should Washington offer free trade consideration to yet more budding competitors.