In 2015, global economic activity remained subdued. Growth in emerging markets and developing economies declined for the fifth consecutive year, while advanced economies continued to experience weak growth.
High rates of unemployment worldwide—particularly for young people—point to what the International Labour Organization has termed an emerging “jobs crisis”.
Some politicians claim that global trade puts local jobs at risk, particularly in the manufacturing sector. The argument goes that closing markets to international competition will safeguard jobs and boost domestic economic growth.
The American worker is being crushed by trade.
2016 Republican Presidential Candidate
Research shows quite clearly that open economies grow faster than closed ones. To take just one example, World Bank research shows that developing countries which opened up to international trade in the 1990s grew more than three times faster than those that maintained a high degree of protection to international competition.
The relationship between trade and employment is somewhat more complex. It’s well known that trade can cause changes in labour markets—such as where new jobs that are created replace more traditional roles and skills. That’s why it’s important for governments to put in place coherent policies that help facilitate structural adjustments and address associated social concerns. Nevertheless, trade isn’t a zero sum game when it comes to employment: many jobs depend on both imports and exports. Imported inputs are increasingly used in local value-added production, with the output often destined for export markets. Take the Boeing 787 Dreamliner, the production of which involves 43 suppliers spread over 135 sites around the world collaborating for their mutual benefit.
In times of economic difficulty, closing markets to international competition might sound like a good way to “protect” jobs. But experience has shown that such policies are often counterproductive: temporarily saving jobs in vulnerable sectors often at the expense of higher paying jobs in competitive sectors of the economy. For example, one study of the quantitative restrictions in autos, steel and textiles in the US in the mid-1980s put their annual cost at almost a quarter of a million dollars per protected job.
With appropriate complementary policies, trade can contribute to sustainable growth, quality job creation and increased consumer choice. That’s why it’s vital that governments resist the temptation to establish trade barriers and instead focus on providing support for displaced workers—including skills training for new jobs.
Governments can also take steps to create an environment which attracts inward investment (FDI). Research shows that FDI plays a vital role in creating new jobs and driving economic growth—as well as significant transfer of technology and know-how from country to country.