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A Conversation on Trade and Manufacturing

Ann Harrison is a Wharton management professor of business economics and public policy. Following President Donald Trump’s recent executive order withdrawing the U.S. from the Trans-Pacific Partnership (a trade agreement between the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam), KWHS spoke with Harrison about trade and its impact on jobs and lives both in the U.S. and globally. Among other insights, Harrison suggests that we should also be talking about school reform in the U.S., because educated workers are going to benefit from shifts away from manufacturing and toward a more digital economy.

An edited version of our interview appears below.

Knowledge@Wharton High School: What is trade?

Ann Harrison: Trade is when a company in your country sells goods outside its borders or buys goods that come from somewhere else. iPhones are manufactured outside the U.S. To get them here, we need to bring them in, which is an import. When we sell goods, that’s an export. Boeing [the world’s largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems with headquarters in Chicago] sells planes all over the world. Those planes are sold and shipped across borders. When it’s sold elsewhere, it is an export and when a good is brought in by plane or ship, it’s called an import. That is the backbone of trade. If you look at trade over the last several hundred years, it’s been going up as a share of the total economy. In small countries, it can even be 100% of GDP [Gross Domestic Product]. In the U.S. exports and imports are 30% of GDP, which is still a really big number and a big part of the economy. Historically, trade has been in goods like iPhones, and now countries have started to trade services, like Hollywood films exporting services to Europe. Service trade is growing, but it is still mostly manufacturing.

KWHS: How does trade affect jobs in America, in particular factors like displaced manufacturing jobs?

Harrison: Trade affects jobs as a two-way street. If you’re a worker for Boeing, for example, then you are involved in the exporting of goods. [On the other hand], you might also work in a sector that competes with imports from other countries. In North Carolina, we used to have a thriving textile and apparel industry. Most of those things are now made in other countries and imported. Workers in industries where goods are made somewhere else and imported here are hurt by trade. Workers in exporting sectors – like those at Boeing — are helped by trade. That’s the production side. We also have to consider all the people who buy these goods that are coming into a country. If iPhones were made in the U.S., it would cost you two or three times what it does now to buy them. A $700 Apple product would cost you $2,000 if it were made here. Consumers benefit because imported goods like this can be less expensive to buy.

KWHS: What does President Trump’s decision to pull the U.S. out of the Trans-Pacific-Partnership Trade deal mean for U.S. trade?

Harrison: If most economists add up all the costs and benefits for export industries like Boeing or buying imported products at a lower price, then they would generally say that the benefits [of trade] are bigger than the costs. For the last seven years, people have thought that more trade was better. Donald Trump’s decision last week to pull the U.S. out of the Trans-Pacific Partnership is considered a radical departure from the last seven years. Why does Donald Trump believe that it is important to change course? He is representing those workers who have been hurt by trade. The key states that contributed to his victory are traditionally known as the Rust Belt [what once served as the hub of industry in America] — Pennsylvania, Ohio, Michigan, Wisconsin. There you will find a large group of workers who previously worked in manufacturing sectors that have been declining, like steel and automobiles. Trade has hurt workers in those sectors, and those workers supported Trump in his bid for president and his anti-trade stance.

KWHS: In your opinion, will a decreased focus on U.S. trade protect American workers and American invention and innovation?

Harrison: It probably won’t protect American innovation and invention. America is best at producing the very high-tech, innovative things like designs for new smart iPhones and new software. Uber, for example, is a great America innovation, as is Google and other things related to the Internet. America is also a big innovator in the pharmaceutical industry, where we come up with new medicines to cure diseases, or in the high-tech sector, where we create new semiconductors. All those areas are where America is at the forefront. We’re designing the driverless cars of tomorrow, the new communication tools, the new medicines. That is what our country is really good at and what we are exporting to the rest of the world. We’re not as good at manufacturing. Let’s take the latest pharmaceutical drugs. Our scientists, researchers and technicians come up with new formulas to treat diseases. They don’t make the pharmaceuticals themselves, but instead have them made in a country like India. We then bring the made products back and engage our best designers, marketers and salespeople to sell it. In my opinion, protecting our manufacturing base is not going to push our innovation because our innovative strength is not in that area.

What President Trump is proposing [for trade and manufacturing jobs] is a short-term solution. It might work in the short run. But in the long run, if we want to create high-paying jobs, the solution is more painful and more expensive. It requires sending more people to college, training them to work in tomorrow’s high-paying sectors like health care, innovation and the Internet/digital economy. We need better schools. [More people] need to have access to those schools. And possibly we need a much more aggressive distribution from the one-percenters [the wealthiest 1% of people in the U.S.] to the rest of the country.

KWHS: What opportunities do global markets give us and what does President Trump’s decision mean for students and workers in other countries?

Harrison: A lot of economists are worried about the direction the new economy is taking. The rest of the world has billions of people. When any company wants to grow, essentially that company has to look outside our borders because that is where the growth opportunities are going to lie. We need to be part of the global economy. Students in the rest of the world also want to have a better life tomorrow and want more opportunities. Their countries are helping reduce poverty rates in India and China by allowing those countries to engage in global trade. The only countries that have caught up with the rich countries are Singapore, Hong Kong, China — the Asian countries. The way those students created a better life for themselves is by engaging in the global market. If we turn our back on the rest of the world and take an America-first stance, we are blocking off those opportunities for the rest of the world.

KWHS: Any other key takeaways from the changing trade and manufacturing landscape?

Harrison: I believe that President Trump ran a successful campaign because he highlighted the fact that in this new digital economy where America’s strength is moving away from manufacturing, a lot of people have been left behind. America really needs to help those people left behind through things like stronger educational opportunities. We need to help people hurt by globalization, and we can’t continue to pretend that there are only winners in the new economy. I disagree with how we fix the problem. But it does exist.

Conversation Starters

Is Donald Trump's decision to pull the U.S. out of the Trans-Pacific Partnership considered radical? Why or why not?

Where do you personally stand on the position of trade? Do you believe we should limit our involvement in the global economy to protect manufacturers or should we embrace global trade and expansion?

Ann Harrison says, "We need to help people hurt by globalization, and we can’t continue to pretend that there are only winners in the new economy." What does she mean by this? How does she propose that we help them? For more insight on this topic, listen to the Radio Times podcast found in your Related Links tab to the right of this article.

15 thoughts on “A Conversation on Trade and Manufacturing

  1. Trump’s decision is radical because it is taking a vital part of our trade system out. Also, most of the people that voted for him were affected by trade in someway, so it doesn’t make sense that he would back us out of it. Trump also represents people in the trade which stirs up arguments. It’s just being sort of hypocritical.

  2. I personally think that trade is a necessity for the United States to take part in. Without trade we wouldn’t have as many products that we do now at the same cost, like Harrison said, an iPhone would be 2,000-3,000 dollars where if we had it imported we would be able to buy them for 700-800 dollars. I think that we should promote trade with other countries because everyone can offer something to another in return. Every single country specializes in something else and it makes it important to be able to take advantage of that.

  3. Trump’s decision to pull the U.S out of the Trans-Pacific Partnership is considered radical because it deviates drastically from US policy over the last seven years. While he is representing those who have been hurt by trade, his jump from past trade practices to the new, present ones makes his decision radical.

  4. I believe that the deal could both be a positive and a negative. This trade deal has to be part of a bigger plan for the US. It keeps consumers able to purchase more but that also means there’s less jobs. To compensate, I believe the government should create an incentive for companies that choose to operate in the US.

  5. His decision to pull us out of the Trans Pacific Partnership Trade deal means that we will have more jobs here in America, however will affect us a little because we depend on foreign goods a lot more than we should. . Usually we have to outsource our jobs and that is a problem. However by pulling the jobs back in more factories and other businesses will pop up and our economy will slowly but surely grow and benefit us and not other countries, more people here will have jobs. So his decision will ultimately benefit us in the long run. .

  6. What I think she means is that we need to help people that are hurt by trading with different countries because if we want to create high paying jobs, and to stay in the United States. How she proposes we do that is start by protecting our manufacturing base is not going to push our innovation because our innovative strength is not in that area. Also to give high school students a better education if they can’t afford to go to college.

  7. I believe we should limit our involvement in the global economy. America needs to start making its own products again. Limiting trade would give people more jobs too.

  8. Where I stand on trade is fair trade. I do not believe that we should be isolated from the rest of the world because that will do more damage than anything else. But I do believe that we need to bring manufacturing jobs here. And also our Trade deficits with some of these countries around the world are crazy. If you look at literally anything here in the U.S. it’s made in China or another Asian country. I think about half of the stuff should switch over to be made in the U.S. like T-shirts or hats, something that we can afford to spend a little more on not iPhone’s or computers.

  9. Reading this article we can see that the decision to pull us out of the deal is considered radical but it is something that we had to do. We want to create jobs in America. I think we should start worrying about ourselves before we worry about other countries. I feel as though it will be a good decision in the long run for the United States of America.

  10. I believe we should definitely lower global trade. As a country I believe we rely on other countries to much to make our products. If something were to happen and we could not get imports then there is a chance that our economy would struggle because we would not know to support ourselves.

  11. The decision is great because it would keep jobs in the United States, and not in other countries. Donald Trump thinks that if we trade to much we will lose jobs, and also people in the United States will not have a job. The government should not pass any of these laws for a while.

  12. The decision is great because it would keep jobs in the United States, and not in other countries. Donald Trump thinks that if we trade to much we will lose jobs, and also some people in the United States will not have a job if this law was passed The government should not pass any of these laws for a while.

  13. Personally, I believe that the country should be trading with as countries and as many people as possible. We should limit our international trade to a certain degree but not completely. Making our trade industry bigger will only benefit our economy and open new markets that would not be there if we did not embrace global trade and global expansion of our companies.

  14. Knowing about our jobs in America, We should have made this deal. Jobs in America today are becoming more and more scarce every year. On the other hand, we need these goods from other countries like China. In America i think this is good we made this deal because this will create more jobs in america if we do not have thing China would usually make, like phones and cars.

  15. I believe that pull back on trade was a good and bad idea as in not only will it bring jobs back to America it will also hurt the economy. When other countries do good Americans also do good because when other countries have money they have the ability to then buy things of ours they need which allows the spread of wealth to continue. Its good for some reasons though more Americans get to have these jobs that we were paying other people across the world to do.

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