Last month I explored a counterintuitive point: The very idea of trying to achieve “balance of trade” – reflecting the difference in value between a country’s exports and its imports – is actually something of an illusion.
So I was interested to see a recent take on trade economics on the The Washington Post’s WonkBlog site that gets the basic principle about the trade balance right. And the fact that it focuses on energy trade should make it all the more relevant on this blog – though it applies broadly to more than just trade in energy products.
The Post’s Brad Plumer highlighted a new study by Harvard economist Robert Lawrence that examines whether the current surge in domestic oil production – which is leading to significantly lower imports – will shrink the country’s trade deficit.
I’m guessing that most would think that is the case. Indeed, Lawrence cites several prominent energy experts who predict that that the nation’s move toward oil self-sufficiency will lead to large declines in the overall U.S. trade deficit (see note 3).
Lawrence shows why they are mistaken. “Without a change in U.S. national saving and investment,” he writes, “the overall trade balance in goods and services would remain constant.”
While I’m on the subject of international trade, I want to flag a recent Wall Street Journal op-ed by Matthew Slaughter, a former member of the Council of Economic Advisors. He examines a fundamental benefit of increased trade that gets scant attention.
Increased trade doesn’t just create new jobs, Slaughter writes, it helps boosts wages as well. So it’s not just the added jobs, but the quality of those jobs that improves with growing global trade.
Workers at globally engaged companies tend to earn more than workers at purely domestic companies. Exporters tend to pay about 15% more. Multinational companies, which not only export and import but also undertake international investment, tend to pay even more. All these “high-trade” jobs tend to pay more because global engagement fosters—and is fostered by—innovation and productivity growth. … This dynamism creates good jobs not only at global companies themselves but also at their domestic suppliers.
These are valuable points worth keeping in mind when opponents of trade cite outsourcing and low-wage jobs as reasons to set up barriers to global commerce. Slaughter’s research shows the story of global trade is a good one with benefits for any nation that embraces it.