JOHN HOOD COLUMN: Trade lifts North Carolina economy

Published 10:16 am Wednesday, September 8, 2021

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When North Carolinians are free to trade with whomever they choose, be it South Carolinians or South Koreans, some local businesses may lose sales. The case for markets isn’t based on promises of cost-free benefits or perfect outcomes. No such promises could ever be honored in the real world.

John Hood

Yes, the broader the market for goods or services, the most likely it becomes that some local producers won’t be able to compete with faraway ones. The true case for free trade is that these adverse consequences for individuals or companies represent just one side of the equation. The other side, the benefits, comprise not only the local consumers who get more or better goods at lower prices but also the local residents who earn higher real incomes as a result.

Who are they? The most-obvious example would be our friends and neighbors who work for firms based overseas but with a substantial presence in our state. By being connected to the global economy, we don’t just lose jobs to other places. We also gain jobs from other places.

According to the U.S. Bureau of Labor Statistics, some 319,000 North Carolinians are employed by multinational firms with a direct foreign investment here. If we didn’t welcome such investment — which requires, in part, be open to direct American investment in foreign countries, too — many of these North Carolinians would be employed by domestic firms, but necessarily at the same wages. And some of those workers wouldn’t be in North Carolina at all.

Now let’s talk exports. From agriculture and life sciences to manufacturing and finance, North Carolina-based companies make a lot of money selling goods and services overseas. That money translates into more jobs, higher wages, and greater investment returns for us. When we slap tariffs and other trade restrictions on imports, other countries do the same to our exports.

Speaking of imports, another way that free trade produces net benefits for North Carolinians is by making raw materials, equipment and supplies more affordable for domestic firms. If the federal government jacks up tariffs on steel or aluminum imports, for instance, that increases the production cost for companies that make vehicles, aircraft and industrial machinery. Not all of that extra cost can be passed along to the end-user. Some of it gets eaten by the producers, in the form of fewer jobs and lower wages.

And what if our producers could pass along all this extra cost to consumers? That would represent still another adverse consequence from trade restrictions. If trade restrictions force me to pay more for a truck, electronic device, or new air conditioner, that means I have less money to spend on other goods and services that may be produced entirely within North Carolina.

The benefits of free trade, in other words, aren’t confined to a small sliver of our population. They flavor a big slice of the economic pie. Estimates vary, but a recent study for the Business Roundtable is probably not too far off the mark. Using 2018 data, it estimates that about 41 million American jobs, about a fifth of the total, are tied to international trade. For North Carolina, the model suggests a net gain of 1.2 million jobs from trade.

That doesn’t mean, of course, that if Washington enacts more protectionist policies, all those jobs will be lost. Few politicians say they are against international trade in general. They focus on sectors they consider to be “strategic,” which turns out to be an elastic category. Or they say they are only fighting for “fair trade,” that they’d favor free trade but don’t want to disarm America by failing to respond to the protectionist measures other countries may enact.

Still, these figures help to clarify the stakes. Domestic jobs lost to international competition may be easy to identify and regret. That they are more visible, however, does not make them more numerous or more important than the jobs free trade creates in North Carolina.

John Hood is a John Locke Foundation board member and author.