If you go by the official data, U.S. workers have benefited from international trade in the past few years. The reported deficit in the trade of goods fell 25 percent from 2007 to 2011, adjusted for price changes. A shrinking trade gap is good for workers because it means more Americans are being kept busy producing things for domestic and foreign consumption.
But what if those trade numbers are wrong? After all, the U.S. lost 2 million manufacturing jobs from 2007 to 2011. A new research report from the Democratic-leaning Progressive Policy Institute says the trade deficit is worse than officially stated. It says the government is understating how much of what Americans consume is actually produced abroad, particularly in such low-cost nations as China. Report authors Michael Mandel and Diana Carew calculate that rising imports account for the loss of about 1.3 million American jobs from 2007 to 2011, or about one-third of all the job losses in the private sector outside construction over that period.
Mandel and Carew say the Department of Commerce’s Bureau of Economic Analysis underestimates the value of imports from low-wage nations because of an “import price bias.” They say when a U.S. company switches to a cheaper supplier—such as a Chinese company—and its import bill falls, the government mistakenly assumes the American company is buying fewer items, rather than getting a lower price per item. So it understates imports.
I asked the Bureau of Economic Analysis about this issue. It responded that the pricing problem “may result in an overstatement of real GDP and productivity (estimates range from 0.1 to 0.2 percentage point on real GDP growth).” However, it added that “this is likely to be offset by a similar problem in measuring domestically produced inputs of goods and services.” Mandel and Carew’s work assumes about a 0.2 percentage point miss on GDP, which is consistent with the BEA number, but does not acknowledge that this effect is likely to be offset on the domestic side. Mandel, a former chief economist at Businessweek, and Carew present case studies from apparel, furniture, autos, communications equipment, and computers to bolster their case.