Free Trade Winners and Losers

Free trade always produces winners and losers, and often they can be the same people! The Economist recently published an article outlining the winners and losers, and speaking to the need for provisions to protect those most vulnerable to the effects of free trade, namely the manufacturing sector. The case for free trade is overwhelming. But the losers need more help.

According to the article, as of 2013, China comprises 19% of world manufacturing exports, up from a mere 2% in 1991. This has eliminated a lot of manufacturing jobs in North America. However, the reason these jobs and manufacturing output has shifted to China is because they could produce many of the items that were "Made in America" for much less.

This has resulted in a double-edged sword of eliminating historically well-paying jobs that created much of the middle class, but also bringing down the relative cost of goods, enabling these same families to maintain a higher standard of living than if those same goods were produced in America. 

If protectionist policies come back in style in the US, I suspect that it will not result in the huge bump in middle class that people may expect, for two reasons: 1. Costs will increase due to the increased costs of production; 2. The manufacturing sector no longer is human resource intensive as a result of automation

Rather than feed into the false promise of prosperity resulting from the closing of the free trade doors, America should be focusing on raising the level of its workforce, and providing better protection to those most affected by free trade. 

As a Canadian, I worry that we are not prepared for the potential that our biggest trading partner closes the door on us.

**Views expressed are mine and do not reflect those of my clients or partners