Trade and Jobs


As President Obama left on a ten-day trip to Asia for the G20 meeting of heads of state in Seoul, South Korea and the Asia-Pacific Economic Cooperation forum in Yokohama, Japan, he penned an opinion piece in the New York Times on the importance of trade with the focus on creating jobs. He correctly noted that the U.S. has a history of “discovering, creating and building products that are sold all over the world.” International trade policy reforms can assist in jobs creation, but trade is mostly about competition and economic efficiencies.

The President explained that every $1 billion in exports supports more than 5,000 jobs in the U.S. That is a good number, but is usually misinterpreted. It means that about 5,000 workers are needed to produce, transport and keep track of $1 billion of goods. These jobs pay more than some other jobs these workers had before they became involved in exporting goods. Exports increase wages, incomes and economic activity in the country, but they do not necessarily create new jobs. People leave lower paying jobs to take the higher paying export jobs and somewhere jobs go unfilled because workers have better opportunities and employers cannot afford to pay higher wages. That is a normal economic response as wages and incomes rise.

Kevin Warsh, a member of the Federal Reserve Board of Governors, recently wrote in the Wall Street Journal about public policies needed to increase employment. He said capital and labor need to be reallocated to new industries and new companies. Government spending must be reduced and taxes reformed to reduce costs imposed on productive output. Regulations need to be reduced to create certainty for individuals and firms. Established companies should not be allowed to use political clout to gain an advantage over smaller, newer ones. Warsh said higher personal savings rates and improved financial balance sheets for businesses are critical for long-term prosperity. Monetary policies that result in low inflation and stable currency exchange rates provide the certainty needed for business and consumers. Trade protectionism (import restrictions) should be avoided, and the U.S. should lead efforts for trade openings at meetings like the G20. Warsh concluded that all of these factors determine the country’s productive capacity, the supply side of the economy that can respond to domestic and international demands. As long as unmet human needs exist and markets are free, someone will attempt to organize capital and labor to meet those needs. That creates jobs.

Open trade policies are one part of sound government policies, not a substitute for sound policies or something that can be added on to achieve some predetermined level of exports, employment or income. Public policies that do not foster economic efficiencies at home will prevent companies from being competitive in domestic or export markets. Monetary policies which devalue the dollar with the hope of being more competitive in export markets also lead to higher costs for agricultural inputs like petroleum and fertilizer. High unemployment, beyond 5-6 percent, is a signal that domestic economic policies need to be reformed so businesses can effectively compete in markets, whether at home or abroad.

The effects of U.S. monetary and economic policies are quickly transmitted around the world. The U.S. is almost 25 percent of world GDP measured in dollars; U.S. economic growth is reflected in world growth. The rest of the world can grow without the U.S., but can grow faster and more evenly with U.S. growth. Asset prices in the U.S. are linked to assets in the rest of the world. The U.S. dollar continues to be the reserve currency for much of the world and influences other monetary policies. Uncertainties in U.S. markets often lead to policies in other countries that attempt to offset that uncertainty and make the world more risky.

The President has chosen the right region to highlight his National Export Initiative to double exports over five years. The region includes three of the world’s top five economies with expanding middle classes ready to buy quality products. Hundreds of U.S. business leaders are with the President as he visits India, Indonesia, South Korea and Japan. For fiscal year 2011 that began on October 1, China is forecast to be the second largest U.S. agricultural export market at $15.0 billion, just surpassing Mexico at $14.6 billion. Other major markets in Asia include Japan at $11.5 billion, South Korea at $5.0 billion and Taiwan at $3.2 billion.

While President Obama will be looking for export markets, other leaders will be looking at those same Asian markets and the U.S. market. The EU already has a free trade agreement with South Korea and Canada is working towards one. Japan is increasingly recognizing its need to reform agricultural policies so it can expand trade agreements. This aggressive competition for markets makes it even more critical that the U.S. pursue economic reforms at home to ensure U.S. businesses can compete in these markets. As the President said in the Times, “The great challenge of our time is to make sure that America is ready to compete for the jobs and industries of the future.”

Trade is not a zero sum activity. All countries can have an increase in trade by focusing export activities on the industries where they have the greatest comparative advantage in trade and importing products where they lack the comparative advantage. Agriculture is one of the industries where the U.S. has a comparative advantage with a large production capacity in relation to population while many Asian countries have just the opposite. As was seen again in the trade slowdown of 2009, imports cannot be separate from exports because one country’s imports are another country’s exports.

The worst outcome for trade policy would be for a country’s leader, either President Obama or any of the other leaders he will meet with, to promise jobs growth through trade that cannot be delivered in the marketplace. Jobs growth must come from domestic policy reforms. Trade agreements cannot solve all of the economic problems of a country, but they can add competition and economic efficiencies that benefit businesses, workers and consumers.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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