Why International Trade and Investment Are Good for the US Economy: A Story in Eight Charts

Definition and Importance: Trade and investment across borders drive economic growth.
- American consumers enjoy greater access to cheaper and more varied goods as a result.
- Trade encourages the most productive American firms and industries to innovate, raising standards of living in the US and worldwide.
- Not every single person benefits, but overall, trade and investment are largely beneficial for Americans.

Trade Growth since 1960: Since 1960, the growth rate of trade in the US has averaged double that of the economy as a whole.
- Exports of goods and services have increased fourteen times compared to six decades ago.
- In 1960, two-way trade in goods and services accounted for only 9 percent of the US economy; this figure is now around 30 percent.
- US investment in other countries has risen from 5 percent of US GDP to 28 percent today.

Investment Dynamics: Foreign companies have increasingly invested in US factories and services, which shows the mutual benefits of international trade.
- Cross-border investment lowers costs and improves the quality of consumer goods such as vehicles and electronics.

Concept of Comparative Advantage: Trade encourages countries to produce and export goods in which they hold a relative efficiency.
- The US has a wealth of skilled labor, making it a leading exporter of high-tech machinery, electrical equipment, vehicles, and other capital goods.
- Exported business, professional, and technical services also reflect this advantage.

Earnings Data: Workers in manufacturing industries that export more per worker earn, on average, 16 to 18 percent more than non-exporting industry workers.
Productivity Metrics: Exporting industries are demonstrated to be more productive than non-exporting ones.

“Made in America” Obsolescence: The concept has become less relevant.
- Currently, 80 percent of global trade occurs through global supply chains and multinational corporations.
- Example: The iPhone, which profits Apple, combines components from multiple countries (design in the US, assembly in China).

Critique of Conventional Wisdom: Critics who claim “exports are good and imports are bad” overlook a critical insight:
- Export competitiveness is heavily reliant on access to high-quality and low-cost imports.

Understanding Multinational Impact: Contrary to popular belief, increased investment abroad by US multinationals does not necessarily lead to domestic job losses.
- Increased employment and sales in US multinationals' foreign affiliates correlate positively with employment growth at home.
- Foreign firms investing in the US often seek skilled labor, providing better wages compared to average US firms.

Job Losses from Trade vs. Overall Displacement:
- Job losses due to trade are concentrated in specific industries and regions.
- But, these losses represent a small fraction of involuntary job losses each year.
- The Department of Commerce estimates that for every $1 billion of US exports, more than 5,500 jobs are created.

Trade Deficits: Some argue that trade deficits create unemployment.
- However, empirical data shows no positive correlation between rising trade deficits and increased unemployment rates; unemployment generally decreased even as trade deficits increased.

Role of Labor-Saving Technologies: While import competition contributes to job loss in low-skilled manufacturing, technological advancements such as ATMs and robotics are more significant contributors to job displacement.
- These technologies lead to substantial productivity gains, assessed through output per worker.

Employment vs. Output Trends:
- Manufacturing employment growth has declined, yet manufacturing output is growing more rapidly today than in prior decades.

US Actions Required: To harness the benefits of trade and investment, US policies must focus on:
- Upgrading infrastructure.
- Lowering corporate tax rates.
- Expanding training programs to enhance workforce skills.
Support for Displaced Workers: Providing education, training, and new job opportunities for those negatively impacted by trade and technology changes.
Future Trade Agreements: The negotiation of pending trade agreements with regions such as Asia, the Western Hemisphere, and Europe is also vital for maximizing trade benefits.