And, Just for the Hell of It, Part III of the Free Trade Trilogy

The textbook defense of free trade (and investment):

Making it cheaper and easier to sell more U.S. goods in another country, say, for example, Vietnam, means that more U.S. goods are likely to be sold there.  Leaving aside entirely the question of hiring more people to manufacture these increased numbers of goods, it's clear that if more U.S. goods are to be sold to Vietnam, U.S. companies will have to hire more salespeople to sell them, more accountants to keep track of the revenue, more lawyers to ensure regulatory compliance and settle disputes; they will have to buy more shipping and insurance services, which means that shipping and insurance businesses in the U.S. will have to hire more salespeople, accountants, lawyers, and so on, in the loveliest of virtuous circles.  And remember, this pattern holds, even if the increased sales to Vietnam result in zero U.S. manufacturing hires because the goods themselves are manufactured in China, or Indonesia, or Malaysia, or wherever.  Furthermore, even if the new goods are manufactured in China, that means that more Chinese firms and workers are making more money which they can spend on U.S. goods and services.  Apple sells more iPhones in China than in the U.S.  Which means Apple can hire more product designers and software engineers (and lawyers and accountants, etc.) at its  U.S. headquarters.  Chinese manufacturers are huge consumers of the accounting and consulting services of U.S. firms.   And so on.

Now, one place where this virtuous cycle breaks down is in the scale.  Even a significant uptick in sales in Vietnam (again, just an example) for any given company (or sector) resulting from a free trade agreement, might well result in the hiring of one extra lawyer here, or a couple more accountants there.  Efficiency and replicability mean that industries like insurance might absorb large increases in sales to existing clients with practically no new hires at all.  And if the new sales are taking place in Vietnam, then the new sales force may well be almost entirely Vietnamese, with only one or two new Americans to supervise and train.  Hence the trend that has so bedeviled the U.S. economy since the recession: increased profits accruing primarily to already wealthy shareholders, with no meaningful increase in wages or jobs.  And this after the scale of job loss over the previous decades due to overseas manufacturing was so vast.

For better or worse, though, the golden age of American manufacturing, during which factory wages were sufficient to sustain families in a comfortable and culturally/politically relevant middle class, is not coming back any time soon.  The problem of coming to understand new models of economic stability and social cohesion is one that we're going to have to solve without resort to the crutch of nostalgia.  We have to use the tools we've got, and whatever its imperfections or inadequacies, free trade and investment, on the model above, is one of those tools.

Yet finally, I feel compelled to end on a fatalistic note.  In all the hubbub, all the current sturm und drang over trade (and investment) policy, it should be recalled that commerce, a human institution, will find its way, will seek its own ends and move by its own logic, no matter what.  The U.S, after all, has no free trade or investment treaty with China.