View this research report by Grant D. Aldonas, Robert Z. Lawrence, and Matthew J. Slaughter here.
From the executive summary:
The goal of this report is to discuss the economic forces driving this policy drift away from global engagement, and then to off er a set of innovative policies for both the government and private sector aimed at arresting this drift. Our report explicates three key messages.
1. The Aggregate Benefits of Global Engagement
GLOBAL ENGAGEMENT has generated, and has the potential to continue generating, large gains for the United States overall and for the rest of the world as well. Living standards in the United States today are upwards of $1 trillion higher per year in total than they would have been absent decades of trade, investment, and immigration liberalization.
Looking ahead, annual U.S. income could be upwards of $500 billion higher with a move to global free trade and investment in both merchandise and services. This translates into average gain of at least $10,000 per U.S. household per year thanks to past liberalizations, $5,000 per household per year still to be realized.
These gains arise through many important channels. Globalization matches savings pools and investment opportunities around the world; it transfers ideas and technology to fi rms and people everywhere; and it frees countries from needing to produce what they consume. A number of forces—technological change, policy liberalization at home, and policy liberalization abroad—have fostered ever-greater flows across borders of goods and services, capital, ideas, and people. The net result has been higher aggregate productivity and living standards for the United States.
2. The Distributional Challenges of Global Engagement
THE AGGREGATE GAINS from global engagement, large though they are, are not evenly shared and do not directly benefi t every worker, firm, and community. The many constituent forces of global engagement have also fostered economic changes that have pressured the well-being of many workers. These pressures are both short-term and long-term, and they often are concentrated in particular groups of workers, firms, and communities.
One very prominent cost is worker dislocation from increased product-market competition. International trade and investment are continually forcing U.S. firms to seek new ways of making profi ts; absent such innovations, these fi rms tend to scaled own or even go out of business altogether. Global engagement is by no means the only source of job destruction in the American economy, but like dislocations from all sources, it often does create real costs in terms of unemployment spells and lower re-employment earnings.
Labor-market pressures are not limited to those directly dislocated and forced to move. Thanks to domestic competition among workers in the very dynamic U.S.labor market, over time the pressures of global engagement spread economy-wide to alter the earnings of even those not directly exposed to international competition.
From the mid-to-late 1970s to the mid-to-late 1990s, the real and relative earnings of less-skilled Americans was poor relative to both economy-wide average productivity gains and also the earnings of their more-skilled counterparts. And since around2000, the large majority of American workers has seen poor income growth. Only a small share of workers at the very high end has enjoyed strong growth in incomes. The strong U.S. productivity growth of the past several years has not been refl ected
in broad growth in wage and salary earnings.
Economic openness has also pressured particular companies and communities. Global engagement fosters high productivity in American industries, but typically with substantial churn at the level of individual fi rms, with pervasive shut-down of ineffi cient plants and even entire companies. And because economic activity tends to be concentrated across American communities, this uneven distributionof globalization’s pressures across workers and firms also means uneven pressures across communities as well. Hardship has befallen towns whose employment—and
often tax revenues—are predominantly in fi rms and/or industries struggling against international competition.
The bottom line is that today, many American workers feel anxious—about changeand about their paychecks. Their concerns are real, widespread, and legitimate.What role the forces of global engagement have played in this recent poor labor market performance of most Americans remains an open question. But whatever the answer, in the current political discourse on this question globalization is often front and center.
3. A New Policy Agenda
ECONOMIC POLICY should aim to produce a growing American economy in which every American can fi nd opportunity to use their skills to craft their own economic future. That is the only way to meet the current challenge of guaranteeing that America overall continues to benefi t from global engagement while also delivering on the idea of an equal-opportunity society and thereby addressing the legitimate distributional concerns about the pressures of economic openness. Our policy proposals draw on what are commonly considered domestic economic policy tools, rather than the tools of trade policy that are the focus of much of the current political debate. Globalization has largely erased distinction between domestic and international economic policy.
First, we explain how to address the current skewness in U.S. income growth. Westart here because the protectionist drift refl ects a public increasingly skeptical about whether globalization benefi ts them in the face of weak or non existent income growth. As such, we consider this poor earnings performance to be the most pressing policy issue to address. Our main proposal here is to reform the Federal Insurance Contributions Act tax to make it more progressive, either by fully integrating FICA into the income tax or by adding greater progressivity into FICA itself.
Second, we propose a menu of policy innovations designed to better facilitate adjustment by workers, communities, and firms. More can be done to smooth adjustment to the continual change in the dynamic U.S. economy in terms of hirings,firings, start-ups, and shut-downs.
One important proposal here is to combine Unemployment Insurance and the current Trade Adjustment Assistance program into a single integrated Adjustment Assistance program that off ers a menu of features to all displaced workers. A second is to create a federal insurance facility that permits communities to insure their tax base against sudden economic dislocation. And a third is to identify certain communities facing signifi cant pressures from international competition as GlobalEconomic Development Platforms eligible for various supports aimed at attracting new investment to build new linkages to the global economy.
Third, we discuss why turning away from open borders—either a pause from liberalization or an actual move towards protectionism—is neither a viable nor desirable option.
Fourth, we propose a menu of recommendations to ensure that the United States remains fully engaged in the global economy. These proposals aim to move the discussion beyond the platitude “remain open” to a set of concrete ways to maximizeAmerica’s gains from global engagement.
One important proposal here is for Congress to renew Trade Promotion Authority on a permanent basis. U.S. policymakers should aim to achieve meaningful liberalization in the Doha Development Round not just in agriculture, but more importantly in manufacturing and services. If Doha fails, the United States should call for the negotiation of a free-trade agreement covering both goods and services that would be open to all WTO members that choose to participate. Protection of inward foreign direct investment (FDI) needs to be strengthened, and the United States should remove outdated restrictions on inward foreign investment in areas including airlines, shipping, and telecommunications. And sensible immigrationreform is needed, in particular to expand the supply of visas essential to attract top talent prospects by eliminating the cap on H1-B visas.