Openness to international trade can be a key factor in driving growth and the creation of more – and better – jobs. But to fully realize the positive aspects of trade, countries must undertake complementary policies that drive skills development, foster private investment, improve infrastructure and provide a solid social safety net.
These are among the conclusions of a landmark study released earlier this year by the International Collaborative Initiative on Trade and Employment (ICITE), “Policy Priorities for International Trade and Jobs.” USCIB, working with the OECD and BIAC, organized a program on September 13 in Washington, D.C. to review the study’s findings.
ICITE is a joint initiative of 10 international organizations, led by the OECD and including the International Labor Organization, the World Trade Organization and the major development banks. Some 60 people from business and government attended the panel discussion.
Rob Mulligan, USCIB’s senior vice president for Washington, served as moderator for the program. He noted recent media reports pointing to a decline in global trade this year, due in part to increased protectionism around the world. At the same time, unemployment remains high in the U.S. and Europe, while the emerging economies are slowing. In this environment, the OECD-led study is especially timely with its conclusion that trade can drive growth and create better jobs when supported by other structural policies.
Ken Ash, the OECD’s director for trade and agriculture, provided an overview of the 450-page report’s key findings. These include:
- Market openness can be a key factor promoting growth, improving employment and wages, and contributing to better working conditions. But these positive impacts are not automatic. Complementary policies are needed such as investment in human resources and physical infrastructure, a positive climate for investment, and social protection policies to assist individuals.
- Of the 14 multi-country studies undertaken, all concluded that openness to trade raised national incomes. By contrast, not one has showed that trade restrictiveness had a long term positive impact on growth.
- Trade, including imports and exports, contributes to new and better jobs. Exporting firms tend to pay higher wages. Imports, by raising productivity growth, create higher wage/skill jobs.
- The composition of jobs has changed. The global location of manufacturing has shifted from higher to lower income countries over the past 30 years. At the same time, between 1995 and 2005, the services sector accounted for all net job growth in high-income countries, and for 85 percent of new jobs in middle income countries.
- Appropriate companion policies vary across countries. Public investment in human resources and physical infrastructure may be particularly important in many less developed countries.
Following Ash’s presentation, a panel of private sector experts shared observations on the report and suggestions for areas of further work. Dorothy Dwoskin, senior director of global trade policy and strategy with Microsoft, highlighted several areas of the report she strongly supported, including the conclusions about the importance of services as the great enabler of the economy overall. She agreed with the need for complementary policies, especially those that relate to skills or talent, and expressed concern that the U.S. could lose its ability to lead the changing global economy due to a skills and talent deficit.
For example, Dwoskin noted that in computer science, the U.S. Bureau of Labor statistics projects there will be 1.5 million job openings between 2010 and 2020, and 1.2 million of those jobs will require at least a bachelors degree. Yet in 2010, only 60,000 individuals graduated from U.S. with computer science degrees from U.S. universities. In terms of things missing from the report, Dwoskin said she hoped the rule of law would figure more prominently, particularly the importance of intellectual property protection.
Another panelist, Ed Gresser, executive director of Progressive Economy, provided some additional data related to the key points from the report. On the benefits of trade, he noted that the U.S. economy opened significantly between 1992 and 2005 as the result of NAFTA and the Uruguay Round. During that period, spending on clothes, shoes, linens, furniture, audiovisual equipment and appliances went down from 10.1 percent of family budgets in 1990 to 7.0 percent of family budgets, saving $2,100 annually for a family with children.
Looking at trade restrictions, Gresser noted that tariffs maintained on clothes, shoes, linens and luggage since the 1970s have resulted in almost $40 billion in cost to the public, while employment in these industries has decreased by 85 to 98 percent. Reinforcing the importance the new report places on complementary policies, especially education, he noted that Americans over 25 with a college degree or more have a 4.1 percent unemployment rate, while those with no degree have a 12 percent unemployment rate.
The final panelist, BIAC Chairman Charlie Heeter, managing director for global public policy with for Deloitte Touche Tohmatsu, recognized the great value of the report in providing thorough, evidence-based analysis that supports open trade policies. But he said there is still much to be done to make the arguments in terms that people can readily understand. He too stressed the importance of supportive policies to facilitate labor market mobility, the acquisition of new work-related skills, job search and placement, and income-support and related social services.
Heeter applauded the prominence given to trade in services, but expressed concern that the role of services in the global economy is understated and not entirely understood. Government statistics do not adequately capture the impact of services on trade, while many of the barriers to services trade are the result of domestic regulations rather than border measures.
All of the program speakers agreed that the ICITE study provides very useful data and analysis supporting the case for open trade, but more is needed to translate this type of information into compelling narratives that can convince governments to adopt the policies needed to drive growth and avoid trade restrictive measures.
Finally, a separate panel discussion of the OECD study was held at the World Bank. Click here to view a video of that session.
Staff contact: Rob Mulligan