February 01, 2007
Trade and American Jobs: The Impact of Trade on U.S. and State-Level Employment
Related Studies & Resources
U.S. trade has been expanding and, with it, U.S. employment. An economic study conducted for the Business Roundtable found that more than 31 million U.S. jobs depended on trade in 2004. That means nearly one in every five U.S. jobs are linked to exports and imports of goods and services.
The analysis is the first estimate of the net number of U.S. jobs, both nationally and by state, that depend on U.S. exports and imports of both goods and services. The key findings of the new study are:
- Total net U.S. jobs dependent on total U.S. trade exceeded 31 million in 2004. Nearly one in every five U.S. jobs are positively linked to exports and imports of goods and services. w Contrary to popular belief, the net impact of trade on the number of U.S. manufacturing jobs is positive.
- Every U.S. state has realized net employment gains directly attributable to trade.
- As U.S. trade -- both exports and imports -- has grown over the past decade, caused in part by trade liberalizing international agreements, so has the number of U.S. jobs tied to trade.
In 1992, a year prior to the implementation of a long string of multilateral and bilateral trade liberalizing agreements, net total trade-related employment in the United States totalled approximately 14 million jobs, one in ten U.S. workers.
By 2004 the comparable trade-related employment estimate had more than doubled, representing nearly one in five U.S. workers.
Past estimates of trade-related employment either vastly underestimate the number of U.S. jobs tied to trade, or they suffer from serious estimation flaws that bias their results. This study represents the first comprehensive look at total U.S. trade and employs a methodology that accounts for trade gains as well as losses, and that covers services as well as goods trade.
A long-standing perception exists that trade has a net negative impact on U.S. employment and U.S. wages. While most Americans accept that exports are “good” – job creating and generally high paying – they also believe that imports are “bad” – they cost jobs, particularly lower-skilled and lower-wage jobs. Many also believe that, on balance, the costs associated with importing exceed the benefits associated with exporting. The analysis in this study demonstrates that those perceptions are incorrect. This study contains a thorough examination of the impacts of trade on U.S. jobs. It examines the impact of both exports and imports, and of both goods and services on U.S. output and employment and demonstrates that the net impacts are in fact positive. By implication, trade liberalization, which increases both exports and imports, has resulted in net job creation rather than job loss.
This paper begins with a summary of the U.S. trade picture for both goods and services over the last decade.1 It then reports the results of new research that uses sophisticated computer-based economic modelling techniques to estimate the total effects (both gains and losses) from trade, defined as broadly as possible (exports and imports of both goods and services).We focus on the impacts of trade on U.S. output and related employment, and break our results down for each U.S. state. An Appendix provides details of our methodology.
II. The Importance of Trade to the United States: The Basic Facts
Trade has become an increasingly important part of the U.S. economy. Our exports and imports have grown consistently since the middle of the 20th Century and trade makes up an increasingly large portion of U.S. GDP. In 2005, total trade (exports plus imports) represented more than 27 percent of U.S. Gross Domestic Product. In 1947, at the launch of the General Agreement on Tariffs and Trade (the precursor to the World Trade Organization), it represented only 7.5 percent of U.S. GDP.
U.S. exports have been growing. Over the last 10 years, total U.S. exports have increased at an average annual rate of 5.0 percent, despite some decreases during the period due to the U.S. recession, “9/11” (which affected travel and touristrelated services), and the strong U.S. dollar. Recovery from the recession and “9/11” economic shock turned around export declines, and the changes in the dollar’s value beginning in 2002, in particular, helped to boost total U.S. export growth into the double-digits. Exports increased 13.2 percent in 2004 and 10.4 percent in 2005.
U.S. imports have also been increasing over the last 10 years. Approximately half of U.S. merchandise imports are raw materials, capital goods and industrial products used by U.S. manufacturers to make goods in the United States. Thus, import demand is significantly impacted by growth in U.S. industrial production. The other half of U.S. merchandise imports is of finished consumer goods, which, as Chart 1 shows, rise or fall according to consumer spending and tend to rise when the U.S. economy is doing well. Key services imports include travel and transportation services.
“Openness” of the U.S. Economy to Trade
Another important contribution to the growth in trade over the last 10 years is trade liberalization, which opened new markets for U.S. exports of both goods and services at the same time it opened the U.S. market to increased imports from other countries.
- Gradual reductions in trade barriers began in 1994 between Mexico and the United States as part of the North American Free Trade Agreement (NAFTA).
- Significant global liberalization began between the United States and members of the World Trade Organization as the Uruguay Round was implemented in 1995.
- China joined the WTO in December 2001, starting the process of opening its market to U.S. exports of goods and services, and at the same time the United States began to gradually open its markets to Chinese exports of textiles and apparel, in particular.
- Free trade agreements were implemented between the United States and Jordan (December 2001), Chile and Singapore (January 2004) and Australia (January 2005).
Each of these initiatives helped to increase U.S. exports as well as U.S. imports, and thus total U.S. trade.
For full report, download the PDF.