Question

(Related to the Chapter Opener on page 288) While running for the 2016 Democratic nomination for president, Vermont Senator Bernie Sanders opposed the TransPacific Partnership in part because he believed that as a result of the agreement, "the U.S. will lose more than 130,000 jobs to Vietnam and Japan alone." Do you agree that reducing barriers to trade reduces the number of jobs available to workers in the United States? Briefly explain.

Short answer

It's not necessarily true that reducing barriers to trade will lead to a net loss of jobs. In sectors where the U.S. has a comparative disadvantage, there could be contraction and job losses in the short term. But in sectors where the U.S. has a comparative advantage, there could be expansion and job growth, potentially offsetting job losses in other sectors. Consumers may also benefit from lower prices and increased product variety. It's a complex reality with potential for both positive and negative impacts.

Step-by-step solution

Understand the scenario

Grasp the context of the question. Relate it to the TransPacific Partnership trade agreement. Senator Sanders believed that reducing trade barriers would lead to job losses in the United States, specifically to Vietnam and Japan.

Identify the theories

Identify the economic theories and concepts that can provide an answer to the problem. In this case, the theory of comparative advantage and trade liberalization will be the key to explaining the impacts of reducing trade barriers on domestic employment.

Explain the impact of reducing trade barriers

Explain that reducing trade barriers may lead industries where the U.S. has a comparative disadvantage to contract, which could lead to job losses in the short term. However, other sectors where the U.S. has a comparative advantage might expand, potentially offsetting job losses elsewhere and even leading to net job growth in the long term. Moreover, consumers may benefit from lower prices and increased product variety.

Formulate the answer

Summarize your understanding and thoughts in response to the question whether reducing barriers to trade reduces job numbers in the United States.

Key concepts

TransPacific Partnership

The TransPacific Partnership (TPP) was a proposed trade agreement that sought to deepen economic ties between member countries by reducing tariffs and promoting trade to boost growth. The negotiations were aimed at facilitating an environment where trade could flourish with fewer restrictions, which has often been seen as a way to stimulate economic activity and innovation.

The TPP had wide-reaching implications, not only on tariffs but also on intellectual property, environmental standards, and labor laws. Its supporters argued that it would open up new markets and create opportunities for exporters, leading to job creation and economic expansion. On the other hand, critics, such as Senator Bernie Sanders, worried about potential job losses as production might shift to countries where labor is cheaper, highlighting the complex relationship between global trade agreements and domestic employment.

Comparative Advantage

Comparative advantage is a key principle in international trade that describes how countries will benefit from trading with each other when they specialize in producing goods and services in which they have a relative efficiency advantage. It suggests that even if one country is more efficient than another in producing all goods, each country should specialize in the good where it has the greatest relative efficiency.

When applied to the TPP context, the United States might lose jobs in industries where it doesn't have a comparative advantage. However, it might gain jobs in sectors where it specializes and can export efficiently. While some may fear job loss in sectors that cannot compete with cheaper imports, others might emphasize the possibilities of job creation in areas where the U.S. excels.

Trade Liberalization

Trade liberalization involves removing or reducing trade barriers, such as tariffs, quotas, and regulations, to encourage trade between countries. The goal is to create a free trade environment where goods and services can move across borders with minimal restrictions.

Advocates of trade liberalization argue that it leads to greater efficiency and consumer benefits, including lower prices and more product choices. However, it is also accompanied by challenges such as the adjustment costs for industries and workforces faced with increased foreign competition. The impact of trade liberalization on employment varies depending on many factors, including the flexibility of the labor market and the ability of the economy to adapt to new conditions.

Economic Theories in Job Market

Various economic theories explain the dynamics of the job market in the context of trade. Concepts like the Stolper-Samuelson theorem predict that trade can affect income distribution within a country, potentially benefiting the owners of abundant resources while hurting the owners of scarce resources.

In the case of the United States, economic theories would suggest that while low-skilled manufacturing jobs may be lost due to cheaper imports, there could be an increase in demand for high-skilled labor in industries in which the country holds a competitive advantage. Adjustments in the job market take time, and economic policies often need to provide support for retraining and relocating workers to new sectors.

Impact of Trade on Domestic Employment

The impact of trade on domestic employment is complex and multifaceted. While trade agreements like the TPP can potentially lead to job losses in certain industries, they can also create job opportunities in others.

For instance, trade can lead to the growth of export-oriented industries, increasing demand for workers in those fields. It can also lead to more competitive pricing and improved product quality, which can increase consumer spending and job creation. Additionally, the influx of foreign investments in certain sectors can drive job growth. However, such transitions can often be difficult and require robust economic policies to assist workers through training and education programs.