![]() ![]() As a result, the real wages of production and supervisory workers have declined steadily since 1979. ![]() 5įor the past two decades, our living standards have stagnated, and the level of income inequality in our society has increased dramatically. Domestic firms are then forced to cut wages or otherwise reduce their own labor costs in response. If the prices of these products fall, then this puts downward pressure on prices in the U.S. The growth in imports, especially from low-wage countries, also puts downward pressure on the wages of U.S. Workers not employed in manufacturing find jobs elsewhere in the long run, usually in service industries where wages are much lower. But trade does effect the composition of employment. Macroeconomic policies such as interest rates and government spending have much greater influence on the total level of employment and output than does trade. The jobs lost through trade do not raise the unemployment rate in the long-run. Second, trade deficits have also had a depressing effect on wages, in several ways. 4 Even if the Fed does lower interest rates enough to keep unemployment constant, 600,000 jobs will shift from the high-wage manufacturing to lower-paying service sector. over the next 18 months if the Fed does not act quickly to lower interest rates and keep unemployment here from rising. trade deficit could eliminate an additional 1 million jobs in the U.S. exports to both countries have fallen sharply. The Japanese economy is contracting sharply as a result of the crisis, and U.S. Deficits are already growing with Korea and with Japan. The Asia financial crises are expected to increase the trade deficit by $100 billion or more over the next two years. lost 395,000 jobs as a result of the NAFTA deficits. Our trade deficit with both countries increased from $16 billion in 1993 to $48 billion in 1996 (in constant 1987 dollars). ![]() by encouraging firms to move production to Mexico and Canada. NAFTA added to the flow of jobs out of the U.S. 2 Growing trade deficits were responsible for most of these job losses, which were concentrated in manufacturing, because most trade involves the sale of manufactured goods. Between 19, trade eliminated 2.4 million jobs in the U.S. First, the steady growth in our trade deficits over the past two decades has eliminated millions of U.S. Trade deficits have harmed the domestic economy in at least three direct ways. If, on the other hand, we ignore the trade deficit, our incomes will continue to stagnate and the risks of an economic collapse will grow in the future. Improvements in our trade balance, through increased exports, can increase income and hence raise national savings, thereby reducing our reliance on imported capital while creating better jobs in the economy at the same time. The Report emphasizes the accounting relationship between savings and investment without sufficiently examining the cause of changes in these variables. The most recent Economic Report of the President makes this mistake in several places, as shown below. One major source of confusion is the use of simple correlations, or economic identities, in the place of meaningful economic analysis of the causes of our trade problems. These laissez-faire views are both wrong and dangerous to the health of our economy. A frequently heard claim is that trade deficits do not matter, while others argue that “the trade balance is generally determined by macroeconomic factors.” 1 Both views suggest that trade deficits will be largely unresponsive to trade policies, and may be safely ignored, as long as the nation is following sound macroeconomic policies. Many attempts have been made to create economic excuses for the trade deficit. Both kinds of problems can and should be addressed with new trade and international policies. as a “market of last resort” for exports from around the world, and from several macroeconomic problems. The trade deficit results from the use of the U.S. ![]() It is destroying jobs, depressing wages, hurting our competitiveness and contributing to the stagnation of real incomes that has plagued our economy for the past two decades. Make no mistake about it, the trade deficit is a problem. Chairman and members of the Committee, thank you for the opportunity to testify here this morning. ![]()
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