Mad About Trade by Daniel Griswold

Probably the one thing I found most annoying about the last presidential election (and most election cycles in general) is the constant bashing of globalization. One of President Obama’s campaign talking points involved ending tax “incentives for companies that are shipping jobs overseas.” Mitt Romney wasn’t much better, claiming he was ready to declare China a “currency manipulator” had he assumed the White House, which would’ve likely resulted in protectionist trade policies.

This epitomizes what I hate most about politics: crass emotional appeals without explaining the truth.

For anyone who wants the truth on trade and globalization, read Daniel Griswold’s 2009 book Mad About Trade: Why Main Street America Should Embrace Globalization.

Trade is not about a jobs program; it’s about a providing us with a higher standard of living, enabling us to peacefully engage in the world through mutually beneficial transactions. Not only does it raise our living standards, it brings the world out of poverty, democratizes nations, and expands basic civil rights.

The evidence Griswold provides is overwhelming:

-Greater variety from imports boosts American incomes by $400 billion per year, or $1300 per person or $5000 for a family of four.

-Global integration add $1 trillion to US GDP. Achieving global free trade would add $450 billion, or $4000 to a family’s annual income.

-600 million are no longer in poverty in China since market reforms and expanded trade policies were implemented.

-The “shipping jobs overseas” rant may score politically, but it doesn’t bear reality. According to economists Mihir Desai, C. Fritz Foley, and James Hines Jr., a 10% increase in capital investment to existing foreign affiliates was associated with a 2.2% increase in domestic investment and a 4% increase in domestic workforce compensation.

-The net loss of manufacturing jobs has been dwarfed by the gain in higher-paying service sector jobs.

-Among the top 28 countries which contain the most economic freedom (including the freedom to engage in international transactions), 22 have a “free” rating by Freedom House, a think tank that ranks countries based on freedom of speech, religious freedom, and freedom to participate in open elections. Among the 28 countries with the least economic freedom, only 5 receive the “free” rating by Freedom House. As Griswold explains, “People in a free and open market tend to see people outside their ethnic and religious group not as threats but as potential customers and business partners.” This breeds “tolerance and compromise in their everyday lives, essential public traits for a democracy.”

Griswold explains how the US corporate tax code provides disincentives for US companies to repatriate their foreign earnings into the US. Far from being a “tax break for shipping jobs overseas,” the tax code creates a penalty for investing in the US economy. By extending the US corporate tax rate to the deferred international earnings of US multinationals as some have suggested, the results would be (in Griswold’s words) “lost sales, lower profits, and fewer employment opportunities in the parent company back on American soil.”

Another important discussion in the book relates to our trade with China. Chinese imports haven’t so much replaced domestic production as much as they’ve replaced imports from other Asian regions. Nor does the trade deficit with China factor that approximately two-thirds of the value of imports from come from other countries, with the US claiming much of that value with technology imports.

My only critique: I think Griswold possibly undersells the “jobs” argument in favor of trade. While trade is not about jobs, there is evidence that trade lowers unemployment thanks to increased productivity and efficiency.

If there’s only one book you read on trade and globalization, make it this one (although I’d also recommend Johan Norberg’s In Defense of Global Capitalism to learn about globalization’s international benefits). Highest recommendation.

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3 Responses to “Mad About Trade by Daniel Griswold”

  1. Protectionism, Not Free Trade, Is The Job Killer | The Blog For Truth, Justice, & The Josh Way Says:

    […] trade benefits consumers who are able to buy goods at more affordable prices, thus increasing American incomes. Competition for customers forces businesses to become more efficient lest they find themselves out […]

  2. Political Demagoguery On Trade: Donald Trump Edition | The Blog For Truth, Justice, & The Josh Way Says:

    […] who falsely condemn international trade as a zero-sum game instead of speaking the truth about trade’s […]

  3. Trump Strikes Out Defining American Greatness | The Blog For Truth, Justice, & The Josh Way Says:

    […] makes us wealthier. According to Daniel Griswold’s excellent book Mad About Trade (reviewed here), an American family of four is $5000.00 richer because of trade. Internationally, countries with […]

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