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Why Trump is Wrong on Trade and Immigration

By: Guest Contributor - Apr 6, 2016, 1:34 pm
Trump is wrong on trade and immigration
Trump insists that low-cost immigrants drive down American wages. (Gage Skidmare)

By Grant Phillips

Donald Trump claims he’ll “make America great again.” He claims that free trade and immigration have lead to widespread job losses and economic turmoil for Americans. These are the signature policies of his campaign, but the evidence just doesn’t support this view.

Americans rely on the benefits of trade everyday of their lives. The importation of low-cost goods drastically increases the purchasing power and lowers the cost of living for all Americans.

This is especially beneficial for the poor, who, according to the economists at the Center for Economic and Policy Research, gain 63 percent of their purchasing power from low cost imports. The prices of the goods consumed by the poor fall more than goods consumed by the wealthy. Imposing high tariffs on these goods would have devastating effects on their ability to survive.

Trump’s claim that American jobs have been permanently lost to Mexico and China is also wrong. The current structural unemployment in the US has nothing to do with offshoring or immigration. Structural employment exists because of skills in supply do not match skills in demand, not low-cost labor.

According to the Federal Reserve, globalization led to job losses for less-skilled U.S. workers, but also created high-skilled jobs. From 1983 to 2002, U.S. manufacturing jobs contracted about 9.3 percent, but grew 36.6 percent in the high-skilled area. According to the National Association of Manufacturing, there are 600,000 manufacturing jobs that are unfilled primarily because of a lack of skilled workers qualified for the jobs. It is this inconsistency between labor supply and demand that is the leading cause of structural unemployment.

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In fact, it is the trade-exposed industries that have most helped increase native employment relative to the non-trade exposed. This is because easier offshoring and immigration produce savings for domestic firms. The cost savings obtained through immigrants and offshore workers promote industry expansion that creates jobs. Ultimately, demand increases for native workers relative to a market scenario with restrictions on foreign labor.

During increases in offshoring and immigration from 2002 to 2012, the US netted over 3 million jobs largely due to the rapid growth in industries such as IT and healthcare. All of this is quite contrary to Trump’s narrative that we “lose” jobs through trade.

Trump insists that low-cost immigrants drive down American wages, and that the H-1B visa program is a major enabler. However, in a multi-city analysis, researchers at the National Bureau of Economic Research concluded that the H-1B has no significant negative effects on native workers at all.

Firms do use H-1B for low cost STEM research, but this lowers the cost of R&D, enabling them to expand operations and create jobs elsewhere. The increased innovation & productivity that results more than offsets any perceived displacement effects on native workers. In fact, the H-1B is associated with significant increases in wages paid to college educated natives.

Trump also cites welfare costs as a reason to restrict immigration. But immigrants have positive impacts on government budgets, and use less welfare than their native counterparts.

Immigrant families are, on average, lower-income than native families and thus overly qualify for welfare programs. If we compare low-income families, the results do not support Trump’s narrative. As economists from the National Bureau of Economic Research found, low income immigrants participate in the safety net at lower rates than low income natives.

The empirical evidence strongly supports the view that, far from being a burden on the economy, immigrants actually contribute net-positive revenue to government budgets. For example, in 2012, illegal and legal immigrants paid $11.8 billion in state and local taxes. Even if they were fiscal drains, it would only be an argument for restricting welfare, not ceasing immigration all together.

Trump capitalizes on frustration with establishment politicians. He blames our economic problems on trade deals and immigrants despite the overwhelming evidence that both benefit our economy and raise the standard of living. If the US is to compete on the global market, we need a market economy that is more business-friendly, more open to trade, and allows more free movement of labor. Not the isolationist economy proposed by Trump.

Grant Phillips is a Young Voices Advocate & the host of Unbiased America Live. You can find his work at The Modern Libertarian.