"The Case for Free Trade Is Weaker Than You Think" - Grep IP, Wall Street Journal

http://blogs.wsj.com/economics/2016/04/11/the-case-for-free-trade-is-weaker-than-you-think/

            This article brings up the point that free trade may not be better then protectionism in all cases. The Chief Economics Commentor of the Wall Street Journal, Greg IP, talks about a paper written by Larry Summers (former secretary of state) and two others authors. Their paper explains conditions under which it might be more beneficial for a country to keep imports out. One condition being that there is a weak demand. If there is too little demand, a country might have a trade surplus, and workers will loose their jobs. Summers and his co-authors argue that this can create secular stagnation (no ability for economic growth).

 Greg IP uses China as an example of this. He says that if China consumes less and saves more, then it will need to import less from the U.S. This will result in a decreased domestic output and lower employment rates in the United Sates. Normally, the central bank could lower interest rates. But if China is saving, it will have excess savings which would make interest rates close to zero (which would drive down the U.S. currency). The central bank would not be able to boost demand enough to employ these workers somewhere else.

The contents of this article relates to different readings from class such as, “Theories of International Political Economy”. The reading on Mercantilism and the Realist Perspective on page 54 says that mercantilism explains that states try to “reduce its imports to a minimum; and it seeks to promote its exports in order to clear a trade surplus.” (Paquin, 54) Because all states can’t have a trade surplus, conflicts will arise. This relates to the article, which is talking about how a trade deficit with the U.S. and China can lead to conflict and affect policies choices regarding free trade and protectionism. If China imports less from the U.S. and the U.S. can’t make up for this loss in demand, it may put us at an economic disadvantage and cause us to change some of our trade policies.
          This can also be related to the concept of Economic Nationalism. Alexander Hamilton was one of the first who helped develop the ideas of protectionism. He believed that strengthening the American economy was a key to independence and security as a nation. (Paquin, 55) Hamilton thought it was best for the U.S. to limit American dependence on other nations. We can see that Donald Trump believes in similar concepts. The beginning of the article mentions how Donald Trump threatens to increase tariffs on Mexico and China and have more protectionist policies. If we look at this through a nationalist lens, these policies may help to protect the United States' power by decreasing our dependency on other nations.  

                             Work Cited

                                                                                                                                             Paquin, Stéphane. Theories of International Political Economy: An Introduction. 1st ed. Ontario: Oxford UP, 2016. Print.

Ip, Greg. "The Case for Free Trade Is Weaker Than You Think."  Wsj.com, 11 Apr. 2016. Web. 18 Sept. 2016. <http://blogs.wsj.com/economics/2016/04/11/the-case-for-free-trade-is-weaker-than-you-think/>.

Blog Post I: Group B

Blog Post I

Hi everyone!

Sorry this post is so late. This is my first time 

This article by Jeffery Sparshott highlights the potential economic impact refugees may have on the United States. Sparshott examines evidence from prior “refugee surges” to assert that, “they worsen prospects for one segment of the population while bettering the lot of another.” He notes that people with lower-wage skillsets have benefited the least from refugee immigration in the past. However, Borjas’ assessment was challenged by Berkley economist David Card. Card believes Mr. Borjas’ argument presents a “one sided view of immigration.” Sparshott acknowledges that the number of refugees entering the United States is relatively small and that they are widely distributed geographically. However, Sparshott maintains that even a small increase in refugee workers can have an effect and concludes his article with Mr. Borjas echoing this thought.

Immigration is a hot topic these days due to the ongoing civil war in Syria and the upcoming U.S. election. Mr. Trump tends to favor a nationalist train of thought and does not favor immigration. I thought this article was pertinent to our discussion of how trade creates winners and losers. According to Harvard’s George Borjas and Center for Monetary and Financial Studies’s Joan Monras, “Refugees damaged the prospects of natives with similar skill levels...but benefited natives with complimentary skill sets.” Sparshott seems to agree that refugees’ labor benefits some groups within the U.S. and harms others. Previously, migrations of immigrants, like the Mariel boatlift of 1980, actually benefited high skill workers. Human capital is valuable; the article touched upon the idea of division of labor. The increase in labor allowed higher skilled workers to further specialize or improve their skillsets. One could assert that the absolute advantage of low-wage workers benefited Miami citizens as a whole. The opportunity cost of a high wage worker doing their own yard work became higher as more refugee immigrants offered their services to the community.


http://blogs.wsj.com/economics/2016/09/21/what-happens-to-wages-when-refugees-arrive-more-than-you-might-think/?cb=logged0.3871697752347243

Wanted to copy and paste the article here because sometimes it can be tricky to view them online.

All best,

Hattie


What Happens to Wages When Refugees Arrive? More Than You Might Think
An influx of refugees can hurt the economic prospects of natives with similar skills, but benefit other workers


The Mariel boatlift in 1980 brought about 120,000 refugees, mainly to Miami.
PHOTO: EDDIE ADAMS/ASSOCIATED PRESS


By JEFFREY SPARSHOTT, Sep 21, 2016 7:07 am ET

The U.S. is accepting 85,000 refugees this fiscal year and the Obama administration plans to raise that figure to 110,000 next year.

The plan is controversial amid worries that terrorists could slip through a rigorous screening process. But what about the economic implications?

A new study by Harvard University’s George Borjas and the Center for Monetary and Financial Studies’s Joan Monras looks at evidence from four earlier refugee surges and finds they worsen prospects for one segment of the population while bettering the lot of another.
“In short, refugee supply shocks have sizable distributional consequences in the labor markets of receiving countries,” the authors said.

Mr. Borjas is generally considered an immigration skeptic, though his work is careful to avoid political judgement or policy prescriptions. His work is often cited as evidence that immigration erodes wages for lower skilled U.S. natives. His latest work is surprising because it shows clear benefits as well—though not for everyone.

The new study looks at the Mariel boatlift, which brought Cubans to Miami in 1980; an influx of French and Algerians into France as Algeria gained independence in 1962; a surge in Jewish emigres to Israel when the Soviet Union collapsed in the early 1990s; and the tide of Balkan refugees as Yugoslavia splintered through the 1990s.

Refugees damaged the prospects of natives with similar skill levels, the study found, but benefited natives with complimentary skill sets.

For example, the Mariel boatlift brought about 120,000 refugees, mainly to Miami. Messrs. Borjas and Monras write that more than 60% lacked a high school diploma. “Even though the Marielitos increased Miami’s population by only 8%, they increased the number of male workers without a high school diploma by 32%,” the authors wrote.

And that was the group that saw wages fall. By contrast, workers with a high-school or college degree saw wages rise. (That may be because the higher-skilled workers paid less for services filled by low-wage workers, like landscaping or housekeeping, making the wealthier workers more productive.)

In the case of Soviet Jews emigrating to Israel, most were college-educated. The influx, which increased the country’s population by more than 13%, hurt wages
of high- and intermediate skill natives. But the earnings of the lowest education group increased, possibly because demand for the services they provide rose.

Mr. Borjas’ work isn’t without controversy. University of California, Berkley, economist David Card studied the Mariel boatlift and found no impact on wages or employment rates in Miami. In a paper earlier this year, he said Mr. Borjas’ work lacks nuance and offers a “one‐sided view of immigration.”
So perhaps it is striking that Mr. Borjas finds such clear economic benefits from the arrival of refugees.

To be sure, the U.S. is accepting a relatively small number of refugees relative to its population, and they tend to be distributed widely across the country. By comparison, the European Union is struggling to handle more than one million migrants, including many Syrians escaping civil war, who have settled in Germany, Austria and elsewhere.

But even a small number of new entrants in the labor market can have an effect.
“A couple of hundred refugees in a town with a thousand workers can have an effect,” Mr. Borjas said.

SOURCE: WSJ