Chapter 15 Chapter Five America and Free Trade (1)

——Whether Ricardo's theory is still correct After the trip to India, as an American who believes in free trade, I have a big question in my mind: In a flat world, can I continue to believe that the theory of free trade is correct?This question must be understood right away—not only because it has become a hot topic in national politics, but because my various views on the flat world are all based on a firm belief in free trade.I know that free trade certainly won't benefit every American, and that our society will have to help those members who lose out in free trade.But to me, the key question is: When the world is so flat, when so many people can cooperate and compete with my children, does free trade benefit Americans in general?Many of the jobs that we feel should belong to us Americans will be taken by competitors from around the world.Wouldn't every American be better off if our government took protectionist measures and banned offshoring?

This question arose for the first time while filming the Age of Discovery documentary in Bangalore.One day, we arrived at the Infosys campus around 5 pm.At this time, the day and night shift workers at the Infosys Transit Center are changing shifts.A large number of workers poured into the park, some took minibuses, some on foot, and some rode small motorcycles. At the same time, many senior engineers left work at this time.We stood at the gate of the park, photographing the flow of people coming in and out. They are all educated young people, full of vigor and self-confidence.Looking at these young people, I really feel the pressure.I kept saying in my heart, Ricardo is right, Ricardo is right, Ricardo is right!British economist David.Ricardo (1772~1823) founded the theory of free trade based on comparative advantage.This theory states that if each country specializes in the production of products in which it has a comparative advantage, and then exchanges their products, both trading parties will benefit from this exchange, and their respective overall national income levels will increase.So if the work done by these Indian tech talents plays to their comparative advantage, they will use their income to buy products that the United States has a comparative advantage, from the glass produced by Corning to the Microsoft Windows operating system, so that both countries benefit from the overall benefits, even though some Indians and Americans have to experience job adjustments in the process.Such gains from trade can be attested to by the enormous growth in Anglo-American trade in recent years.

But when I saw these vibrant young Indians, I couldn't help being confused: Oh God, they are so many, so smart, well educated, hardworking, and their rise is unstoppable. Over a wave.What my daughter and millions of young Americans can do, these Indians can do as well, and they are asking for much lower wages than Americans, which is nothing to the younger generation of America good thing.When Ricardo developed his theory, only commodities were tradable.At the time, there was no undersea fiber optic cable between the US and India to support trade in services.When I was worried about the situation of young people in the United States, the Infosys spokesperson who accompanied us inadvertently said that last year Infosys wanted to recruit 9,000 technical positions, but received 1 million applications from young people, which is really one in a hundred.

This question has been lingering in my mind.I don't want to see any American lose their job in competition with foreign countries, or lose their jobs because of technological backwardness.Unemployment is no longer 5.2 percent for every unemployed person, but 100 percent. Any book on a flat world that doesn't acknowledge this concern, and that there is still a Ricardian paradox among economists He must be dishonest in arguing whether the theory of comparative advantage is correct or not.But after listening to the debate between the two sides, I still agree with most economists, Ricardo is still correct, if we don’t organize the transfer of jobs overseas, don’t break the international supply chain, don’t ban offshore Most Americans would be better off outsourcing.

The message of this chapter is that even if the world becomes flatter, the United States as a whole will, as it has done in the past, outweigh the short-term benefits of trade protection.Trade protectionism will only arouse the retaliation of other countries and ultimately affect our own development.But I want to further emphasize in this chapter that, while a free trade policy is necessary, it is not enough.Free trade policies must be combined with domestic policies that increase the educational attainment of American citizens.That way, he or she is equipped to compete for new jobs in a flat world.The measures that go hand in hand with the free trade policy also open markets that were once restricted around the world (including some of our own markets, such as agricultural products), so that more and more countries will enter the global free trade system, increasing global demand for goods and services, stimulate innovation, reduce unemployment and the global movement of people in search of work.

Of course, protectionists and opponents of offshoring will disagree with this view.The opposition claims that in a flat world, in addition to goods being tradable, many services become tradable.These service jobs have produced much of the American middle class in the past, but never before have they been more vulnerable to offshoring.As a result of this shift, economic growth momentum and people's living standards in the United States and other developed countries will decline in absolute terms rather than in relative terms.Unless these developed nations protect certain jobs—both blue-collar and white-collar—from foreign competition.The opposition points out that the international economic stage cannot accommodate too many people performing on the same stage. The service and technology fields are now dominated by Americans, Europeans and Japanese. They cannot accept the lower wages caused by the entry of competitors.

Proponents of offshoring, including myself as a believer in Ricardian theory, believe that at first, there is indeed a transition period in some fields, during which wages in developed countries may decline.But there's no reason to think this decline is permanent and across the board, because as the global economy grows in size, the pie gets bigger and everyone's share grows.The idea that offshoring will result in an absolute loss of jobs is a fallacy of composition, which holds that the total number of jobs available in a society is fixed and that once some jobs are filled, others can no longer be filled. This worked out.If we are occupying these jobs now, and Indians offer to do the same jobs for lower wages, then these jobs will be taken by Indians, and Americans will face unemployment.

The reason why the above view is called a fallacy of composition is that it does not take into account the factors of invention and innovation. Its theoretical premise is to assume that everything that needs to be invented has already been invented, and there will be no new innovations. In this way, the new jobs created by small companies can compensate for the jobs transferred by large companies. Economic competition is a zero-sum game. What you gain must be my loss.This theory also ignores the fact that one often reads in the newspapers about large companies moving jobs overseas, but the economy keeps creating more jobs in smaller companies.It's hard to believe that these companies are so small to get noticed, but they are.

If this were not the case, the unemployment rate in the United States today would be much higher than 5%.When multinational corporations shifted low-value-added manufacturing and service jobs from Europe, the United States, and Japan to India, China, and the former Soviet Union, not only did the pie in the world economy get bigger—because more people grew their incomes—and The stuffing will also become more varied as more new jobs and more new technologies are created. Let me explain this with a simple example.Suppose there are only two countries in this world - the United States and China.Suppose there are only 100 people in the US economy, of which 80 are highly educated and 20 are less educated and less skilled at work.Then imagine that the world has become flat, and the United States has signed a free trade agreement with China.At this time, there were 1,000 workers in China, but China was a developing country, so among these workers, only 80 had received good education, and the other 920 were unskilled labor.Before the United States and China signed a free trade agreement, there were only 80 workers with high-level skills in the US market. After the signing of the agreement, the number of workers with high-level skills increased to 160 worldwide.So 80 Americans would feel like they were facing tougher competition, and they did.But then the US got the benefit of a much expanded and more diverse market.The original market of 100 people has expanded to 1100 people, and the demand has increased significantly.So it's a win-win outcome for skilled labor in both the US and China.

Yes, due to competition from China, some of those 80 people in the US will have to move into jobs that require newer skills.But rest assured that in such a large and diverse market, new jobs will pop up and pay well for any skilled worker who is constantly learning. So don't worry about skilled workers in both countries, they will do a better job in this larger market. "What do you say, don't worry," you'll ask, "if 80 skilled workers from China are willing to do the same job that American workers are doing for a lower wage, what do we do? How do we solve this problem?"

This won't happen overnight, so while some Americans will be affected by the transition, it won't last.As Stanford University economist Paul.What Romer said: The wages of skilled workers in China are too low.That's because while they have the same technology as their American counterparts, they were historically locked into a closed economy.With China's reform and opening up, the wages of Chinese skilled workers will rise to US/world levels, and our wages will not fall to the same low level.What happened in Bangalore confirmed this view.The scramble by companies for computer programmers quickly brought their wages on par with those of American or European workers -- after decades of low wages in India's closed economy.This is precisely why Americans support the continued gradual reform and opening up of India and China—because overall wages will rise in the long run in a more open and dynamic world economy. But we do have to worry about those 20 less-skilled American workers.Because, they have to compete with 920 Chinese workers.Those 20 American workers used to be paid well because they were small compared to the skilled workforce of the 80 Americans.Any economy needs low-skilled workers.But now that China and the United States have signed a free trade agreement, in this two-country world, the total number of unskilled labor reaches 940 and skilled labor 160. The 20 low-skilled American workers are in replaceable jobs -- jobs that can easily be moved to China, so they're going to have some trouble. It is undeniable that their wages will definitely drop.In order to maintain or improve their standard of living, they must increase their education and improve their skill level, rather than asking to change jobs with the same skills.Only then will these 20 workers find the new jobs created in international markets (in Chapter 6, I will show that our society must and has an obligation to ensure that everyone has the opportunity to learn these skills). Paul.Romer pointed out that from the past experience of the United States, as long as the economic pie continues to grow, the expansion of knowledge workers' skills will not necessarily lead to a reduction in the wage level of all workers.From the 1960s to the 1980s, the supply of college-educated labor grew significantly, and their wages rose even faster.Because as the pie grows, so do people's needs, which places greater demands on people's ability to do complex work and use specialized skills.Romer explained this in part because "there is a distinction between resource-intensive and knowledge-intensive products."If you are a worker with a relatively high level of knowledge, engaged in the production and sale of some knowledge-intensive products, such as providing consulting services or financial services, providing music products, or computer software, or market management, engineering design, research and development of new drugs, etc., Then the bigger the market, the bigger the sales of your products; the bigger the market, the higher the degree of segmentation.If you design the next generation of Windows or Viagra, everyone in the world could be your customer.Therefore, workers with a higher level of knowledge can cope with globalization calmly.Fortunately, the United States has more knowledge workers than any other country in the world. Romer said that if you are just a low-level craftsman, for example, the product you produce is just a piece of wood or a steel plate, then, as the market scale expands, your income from selling products will not necessarily increase, and may even decline. .While there are many factories that will employ you, there will be many more people making these products.The labor provided by carpenters and nannies can only be provided to one factory or family at a time, while the knowledge-intensive products produced by programmers or drug developers can be provided to everyone in the global market at the same time. This is why the United States, by and large, is able to meet the challenges posed by the free trade system in a flat world. Of course, the premise is that the United States can continuously train a large number of workers with advanced knowledge and technology.Because these workers can not only produce knowledge products that are sold globally, but also be qualified for new jobs created by global economic expansion and knowledge pooling.There may be limited jobs in the world for producing resource-intensive products, but there are endless jobs for producing knowledge-intensive products. Still assume that there are only two countries in the world, China and the United States.If in the past there were 15 pharmaceutical companies and 15 software companies (total 30 companies) in the United States, and China had 2 pharmaceutical companies and 2 software companies (total 4 companies), and now, the number of Chinese companies has also increased to 30 (including pharmaceutical companies and software companies), then, in this expanding world economy, there will be more innovations, more treatments, more new products, more market segments, and more People's income will increase, so that they can afford to buy these products. “The economic pie keeps growing because what is a desire today will be a necessity tomorrow,” Mark said.Anderson said.Anderson worked for Netscape, and they created a new business field - e-commerce.There are currently millions of professionals engaged in e-commerce in the world, and these jobs did not appear when Clinton was president of the United States, which shows the rapid development.I always like to go to a coffee shop once in a while. Now that Starbucks is here, I choose to drink coffee at Starbucks, so Starbucks has also created an expanding industry.Similarly, I always hope to be able to search for all kinds of information. Since Google is available, I use it as my search engine, so around the search function, a whole new industry has been established. Google is hiring math PhDs ahead of Yahoo and Microsoft's search engines.People always take it for granted that everything that should be invented has already been invented.but it is not the truth. "If you believe that human desires are limitless," Anderson added, "then there are infinite industries to create and infinite business opportunities to discover, limited only by the human imagination. " The world is flattening, and society is progressing at the same time.If you look back at history, you will find that whenever our trade is more prosperous and transportation is more developed, human economic production will take a big leap, and living standards will increase significantly. After the Second World War, the United States helped Europe and Japan, which were dying of all industries, enter the global economic system. Their manufacturing level and service skills increased day by day, and they often imported technology and equipment from the United States (sometimes even stole them, as in the 1770s in the United States. for the UK).In the 60 years since World War II, the standard of living in the United States has improved steadily.Today, even with the massive shift of jobs overseas, the unemployment rate is just over 5%, about half that of the most developed countries in Western Europe. "We've just built a company that provides 180 jobs," Anderson said. Anderson's Opsware uses automation and related software to replace humans in managing giant server farms in remote locations.By replacing human labor with automated equipment, Opsware saves money and frees talented human resources from routine chores to focus on other new areas.Anderson said, only if you think you will never need new drugs, new industries, new types of entertainment, and new types of coffee houses; only if your country's workers cannot take up the jobs created by new industries and new businesses by improving their knowledge and skills You'll only be intimidated by offshoring when you're working on a mission. "Yes," he concluded, "it's only when you understand the theory of economics, and eventually believe in it, that you realize that there will be new jobs for people to do, but it's hard to get people to accept that theory. " However, new things are constantly being produced around us, and there is no reason for us to think that this phenomenon will change in the future. Some 150 years ago, 90 percent of Americans worked in agriculture or a field related to agriculture.They use mule-drawn plows and harvest crops with their hands.Today, thanks to the modernization of agriculture, we only need less than 3% of the agricultural population to produce the food needed by all the people and even more.What would it be like if we had decided to protect and subsidize all jobs in agriculture against industrialization and later computerization? If mules and horses could vote, there would be no later cars.Would all of us really be better off than we are today?impossible.Of course, the Indians and the Chinese do move up the chain and start making more knowledge-intensive products -- things the U.S. has always been good at -- so our relative advantage in some areas will diminish.Bhagwati, a trade theorist at Columbia University in the United States, explained.In some sectors, wages will come under downward pressure and some jobs will be permanently moved abroad.This is exactly why some knowledge workers have had to switch jobs.But the ever-expanding economic pie will undoubtedly provide more new jobs waiting for these workers to fill, and at the same time these workers will have new comparative advantages, although the new comparative advantages cannot be predicted now. For example, the semiconductor industry of the United States once dominated the world, but later, other countries gradually made progress and occupied the low-end market of the industry.Some countries even compete with the United States in the high-end market, so the United States continues to open up new areas in the market.Without this process, there would be no Intel Corporation today.The truth is, business is booming for Intel right now.Intel Corporation President Paul. In an interview with The Economist magazine (May 8, 2003), Otellini said that when chips are used in certain industries and promote the rapid development of these industries, more industries increase the demand for related chips , This demand has promoted the development and production of more powerful and complex chips. Once Google starts to provide video search as planned, it will inevitably require the configuration of various devices and related technologies that people could not dream of when Google was founded 7 years ago.Of course, it will take a long time to realize this process, but this process will definitely happen.Bhagwati said that the changes that are taking place in the service sector are the same as those that have occurred in manufacturing since trade barriers were lowered.He pointed out that when trade barriers are lowered, the scale of the world market will expand, more competitors will participate in the same production field, and the scale of trade within the industry will become larger and larger, because the division of labor will become more and more detailed and specialized.Mexico specializes in tires, China in camshafts, and the US in overall car design.As we move into the knowledge economy, you will find more and more "internal trade in services", because as the work in the service sector becomes more and more complex, more and more jobs are separated out and become new service industries. So, parents, don't be surprised if your kid comes back from college one day and tells you that he or she wants to be a "search engine optimizer."Yes, you might react like, "Wait, what are you talking about, I sent you to college so you could be a doctor or a lawyer! What the hell is an SEO? Why can't you How about becoming an ophthalmologist like your uncle?"