March 19, 2013
WASHINGTON—Free trade agreements and the surge in American foreign direct investment in emerging market countries overseas have stirred fears in the United States about job losses and other ill economic effects. In the Peterson Institute's newest study, Rising Tide: Is Growth in Emerging Economies Good for the United States? Lawrence Edwards and Robert Lawrence undertake an extensive survey of the empirical literature to date and more importantly conduct their own in-depth analyses of the evidence. They conclude that rapid growth in emerging economies is part of the solution to America's economic problems rather than their source.
Their conclusions contradict several popular theories about the negative impact of US trade with developing countries, demonstrating that trade has been tagged a villain far out of proportion to its actual impact on America's problems of slow income growth and rising inequality. Although many critics maintain that the decline in manufacturing in the United States has been caused by trade and "off-shoring" of jobs, the authors argue that the decline reflects a shift in domestic demand away from spending on goods, and faster productivity growth in the manufacturing, in which fewer workers are needed to maintain the same output.
"Some of the public's fears are well founded and recognized," Edwards and Lawrence say, noting that increased trade can cause "short-term pain in the form of job losses, lower profits, and the dislocation of people and communities." But Edwards and Lawrence say that trade and investment strategies that encourage growth in emerging economies will continue to be beneficial for both the United States and its trading and investment partners for the foreseeable future.
Citing the phrase attributed to President John F. Kennedy that "a rising tide lifts all boats," the authors say: "Developing country growth has therefore contributed toward faster US export growth, an increase in the variety of imports available to Americans, and higher terms of trade associated with any given trade balance."
Rising Tide: Is Growth in Emerging Economies Good for the United States?
Lawrence Edwards and Robert Z. Lawrence
ISBN paper 978-0-88132-500-3
February 2013 • 176 pp. • $20.76
About the Authors
Lawrence Edwards is a professor at the School of Economics, University of Cape Town, and research associate at the South African Labor and Development Research Unit (SALDRU) and Policy Research on International Services and Manufacturing (PRISM). His research interests focus on the effects of international trade on labor, determinants of trade flows, and trade policy. He has published in World Development, Journal of International Development, Economics of Transition, Harvard Business Review, and South African Journal of Economics. He has consulted widely on trade policy issues for the World Bank, African Development Bank, International Growth Centre, the Organization for Economic Cooperation and Development, the Southern African Development Community Secretariat, and various governments in Africa. He was an associate editor of the South African Journal of Economics and South African Journal of Economics and Management Studies.
Robert Z. Lawrence, senior fellow at the Peterson Institute for International Economics, is the Albert L. Williams Professor of Trade and Investment at the John F. Kennedy School of Government at Harvard University and a research associate at the National Bureau of Economic Research. He was appointed by President Clinton to serve as a member of his Council of Economic Advisers in 1999. He has served as a consultant to the Federal Reserve Bank of New York, the World Bank, the Organization for Economic Cooperation and Development, and the United Nations Conference on Trade and Development. He is the author or coauthor of several books, including Blue-Collar Blue: Is Trade to Blame for Rising US Income Inequality? (2008), Has Globalization Gone Far Enough? The Costs of Fragmented Markets (2004), and Globaphobia: Confronting Fears about Open Trade (1998).
About the Peterson Institute
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy. Since 1981 the Institute has provided timely and objective analysis of, and concrete solutions to, a wide range of international economic problems. Support for the Institute's programs is provided by a wide range of charitable foundations, private corporations and individual donors, and from earnings on the Institute's capital fund.