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John Hood: Trade Boosts North Carolina’s Economy |

If North Carolinians can trade freely with whoever they want, be they South Carolinians or South Koreans, some local businesses may lose sales. The case for markets is not based on the promise of free benefits or perfect results. Such promises could never be kept in the real world.

Yes, the wider the market for goods or services, the more likely it is that some local manufacturers will not be able to compete with distant manufacturers. The real reason for free trade is that these negative consequences for individuals or businesses are only one side of the equation. The other side, the benefits, encompass not only local consumers, who get more or better goods at lower prices, but also local residents, who get higher real incomes as a result.

Who are you? The most obvious example are our friends and neighbors who work for companies that are based abroad but have a strong presence in our state. As a result of our connection to the global economy, we not only lose jobs in other places. We also get jobs from other places.

According to the US Bureau of Labor Statistics, around 319,000 North Carolinians are employed by multinational companies with FDI. If we did not welcome such investments – which in part also requires openness to direct American investment abroad – many of these North Carolinians would be employed by local firms, but necessarily at the same wages. And some of those workers wouldn’t be in North Carolina at all.

Now we come to the export. From agriculture and life sciences to manufacturing and finance, North Carolina-based companies make big bucks selling goods and services overseas. That money means more jobs, higher wages and higher returns on investment for us. When we impose tariffs and other trade restrictions on imports, other countries do the same with our exports.

Speaking of imports, another way free trade brings net benefits to North Carolinians is to make raw materials, equipment, and supplies more affordable for domestic businesses. For example, if the federal government increases tariffs on steel or aluminum imports, it increases production costs for companies that manufacture vehicles, aircraft, and industrial machinery. Not all of these additional costs can be passed on to the end user. Some of it is eaten by producers in the form of fewer jobs and lower wages.

And what if our producers could pass all these additional costs on to consumers? This would be another adverse consequence of trade restrictions. If trade restrictions force me to pay more for a truck, electronic device, or new air conditioner, it means I can spend less money on other goods and services that may be entirely North Carolina made.

In other words, the benefits of free trade are not limited to a small fraction of our population. You taste a big slice of the economic pie. Estimates vary, but a recent study for the Business Roundtable is unlikely to be far off. Based on 2018 data, she estimates that about 41 million American jobs, about a fifth of the total, are related to international trade. For North Carolina, the model suggests a net gain of 1.2 million jobs from trade.

Of course, that doesn’t mean that all of these jobs will be lost if Washington pursues more protectionist policies. Few politicians say they are against international trade in general. They focus on sectors they consider “strategic,” which turns out to be an elastic category. Or they say that they are only fighting for “fair trade”, that they are in favor of free trade, but that they do not want to disarm America by not reacting to the protectionist measures of other countries.

Nevertheless, these numbers help to clarify the stakes. Domestic jobs lost to international competition may be easy to spot and regret. But that they are more visible does not make them more numerous or important than the jobs that free trade creates in North Carolina.

John Hood is a columnist for the Carolina Journal.

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