February 2013
Publication:
Peterson Institute for International Economics

In 1963, US President John F. Kennedy said that "a rising tide lifts all the boats. And a partnership, by definition, serves both parties, without domination or unfair advantage." Half a century later, Edwards and Lawrence conclude that this maxim will remain appropriate for some time in the future as a guide for US international economic policy in general and trade policy in particular. They contradict widely held public views on the effects of trade with emerging economies on US employment and demonstrate that trade has often been assigned a role in America’s economic difficulties that far exceeds its impact. Because the United States is still embroiled in recession, concerns raised by prominent economists about lower US welfare, increased inequality, and lower real wages for most US workers are especially troubling because they relate to the long-run impact of trade. If true, they would not be mitigated by the passage of time and would be present even if the US economy returned to full employment.

In this study, Lawrence Edwards and Robert Z. Lawrence confront these fears through an extensive survey of the empirical literature and in depth analyses of the evidence. Their conclusions contradict several popular theories about the negative impact of US trade with developing countries. They find considerable evidence that while adjusting to foreign economic growth does present America with challenges, growth in emerging-market economies is in America's economic interest. It is hard, of course, for Americans to become used to a world in which the preponderance of economic activity is located in Asia. But one of America's great strengths is its adaptability. And if it does adapt, the American economy can be buoyed by that rising tide.

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