In the first quarter of this year, the wave of negative reporting about offshore outsourcing reached tsunami levels, and a majority of Americans seemed to view offshoring as a problem. An Associated Press poll in May found that 69 percent of Americans believe outsourcing hurts the U.S. economy. An Employment Law Alliance poll taken the same month found that 58 percent of American workers believe that the federal government should penalize companies that offshore work. These attitudes are part of a broader trend towards protectionism among Americans. Between 1999 and 2004, public support for free trade declined across the board. The most dramatic shift in opinion came from Americans making more than $100,000 a year, among whom support for promoting trade dropped from 57 percent to 28 percent.
These kinds of attitudes create a powerful constraint for policymakers at a delicate moment in global trade negotiations. Efforts to restart the Doha trade round after the disaster in Cancun will require concessions by U.S. trade negotiators on contentious political issues like farm subsidies. If public opinion is increasingly hostile to trade liberalization, the Bush administration might choose not to invest significant political capital in the process. And while there is a chance that public opinion on trade could change by itself in the future, the latest polls suggest a dark truth about Americans' views on trade: Americans are stone cold mercantilists. That is, they view trade as a zero-sum game, in which one country's gain is another country's loss. There is reason to believe that all the good economic news in the world will not alter that fact.
To be fair, early 2004 was probably the low point in terms of public attitudes towards economic globalization. The rash of management consultant predictions about job losses appeared to justify a lot of hand wringing about offshore outsourcing and its potential effects on employment. The Democratic presidential primary also promoted a lot of talk about the evils of free trade, with John Kerry topping things off by bashing "Benedict Arnold CEOs."
Hard data is starting to come in suggesting that most Americans were wrong to be alarmed. Earlier this month the Bureau of Labor Statistics reported that offshore outsourcing was responsible for 2.5 percent of jobs lost through mass layoffs in the first quarter of this year -- not exactly a large number. Studies at the state and local level buttress this finding. In Colorado, one study found that to date offshoring's impact on IT jobs was exaggerated by media reports. In Detroit, another study concluded that outsourcing's effect on manufacturing jobs had been "overemphasized." The net creation of over a million new private-sector jobs since January has also demonstrated that the effect of offshoring on the national economy is insignificant.
As these numbers have come in, the political response to outsourcing and trade has died down somewhat. In Kansas, lawmakers were eager to ban the outsourcing of some call center operations -- until they discovered such a move would increase costs by 38 percent. In California, officials are trying to work their way around Buy America provisions for steel that would raise the cost of renovating the Bay Bridge by $400 million.
The end of the Democratic primary has also affected rhetoric on trade. After one too many Benedict Arnold speeches, Kerry's economic team read him the riot act. One senior advisor assured me that Kerry wouldn't be using those words again during this campaign. Kerry's proposal to reform the taxation of overseas profits as a way of halting outsourcing makes little economic sense, but it is far less scary than Kerry's initial rhetoric.
But don't hold your breath waiting for public attitudes to follow suit. For one thing, there is a significant lag between the reporting of good economic news and the internalization of that news by Americans. Earlier this month, an Associated Press poll found that 57 percent of respondents believed the nation has lost jobs in the last six months, even though 1.2 million jobs had been created during that span.
More importantly, however, even before the last recession, Americans did not have warm and fuzzy feelings about trade. Kenneth Scheve and Matthew Slaughter catalogued hostility to free trade policies in Globalization and the Perceptions of American Workers. Throughout the late 1990s, majorities of Americans repeatedly affirmed their belief in two things: that the costs from more imports always outweighed the benefits of more imports; and that the costs from more imports exceeded the benefits from more exports. Go back to the early 1950s -- when the U.S. was running a massive trade surplus -- and a plurality of Americans still supported import restrictions over import expansion. Americans are mercantilists in the sense that they support trade liberalization only when they believe it will improve export opportunities with no threat of increasing imports.
Given the widespread support among economists for trade liberalization, are Americans just stupid? Not really -- they're merely responding to how politicians talk about the topic. Both advocates and opponents of freer trade talk about the issue using the language of how policy change will affect the trade deficit -- even though there's no correlation between the balance of trade and income. Even politicians who advocate trade liberalization do so by focusing on increasing American exports and downplaying imports. This ignores the fact that trade is not a zero-sum game; the gains of other economies can also benefit our own. For instance, imports help to lower consumer prices and increase consumer variety. Former Treasury Secretary Robert Rubin observed in his memoirs that when he mentioned this fact in Congressional testimony, a representative told him that he was the first government official to praise the virtues of imports in public.
Unless the entire country -- particularly the political class -- is required to take an introductory economics course, the mercantilist mindset will be hard to shake. One way to change the debate would be for officials to stress the link between trade liberalization and America's grand strategy. This worked during the Cold War as a way of sustaining support for open economic policies. U.S. Trade representative Robert Zoellick has been pushing this angle, most recently in a "New York Times" op-ed earlier this month. However, only one official has a large enough bully pulpit to really move public opinion, and that's the president. I argued last September that George W. Bush is unlikely to make such a move, and I haven't changed my mind. If Bush slapped on steel tariffs when his approval rating was at 85 percent, why would he be willing to suddenly be a teller of complex truths on trade with an approval rating of 47?
But there is one silver lining to this phenomenon, which is that Americans are massive hypocrites. People may believe in mercantilism, but they don't act on those beliefs in large numbers. Consumer lender E-loan conducted an interesting experiment this spring -- it gave customers a choice between having their loan paperwork processed in ten days overseas or twelve days in the United States. In the first three months of the experiment, more than 85 percent of customers chose the overseas option. This corresponds with the May AP poll showing that while a majority of Americans think that offshoring is bad for the economy, a plurality of Americans do not bother checking the label to see if a product is made in this country. As citizens, Americans think of economic policy in mercantilist terms. But as consumers, they are quite content with free trade.
Daniel Drezner is Assistant Professor of Political Science at the University of Chicago.
By Daniel W. Drezner