Faith and Skepticism: Conflicting global views of trade and foreign investment

Date September 24, 2014
Speaker Bruce STOKES(Director, Global Economic Attitudes, Pew Research Center)
Moderator SHIMIZU Mikiharu(Director, Policy Planning and Research Office, Trade Policy Bureau, METI)
Materials

Summary

Bruce STOKES's Photo

Bruce STOKES

We conducted a 44-country survey between March 2014 and June 2014, looking at public attitudes toward the economy, trade, and foreign investment. 48,000 people were surveyed, and great care was taken with the methodology. For example, if 30% of a country's population is under the age of 30, 30% of the sample was under the age of 30. The margin of error is the typical 3%-4%.

About the Pew Research Center

We are based in Washington D.C. and are a non-advocacy, non-partisan think tank. We do not take a position as to whether the Trans-Pacific Partnership (TPP) is good or bad; we just survey people and report the results. We are probably the largest political survey firm in the United States and are largely funded by the Pew Charitable Trusts based in Philadelphia. We do not conduct commercial research, unlike Gallup; we only do public opinion research based on public policy and political and social issues.

Q. Why did you exclude Australia from this survey?

This survey cost $3.2 million, and we have financial limits even with the generous support of Pew. Canada is also not included for the same reason. Next year, we want to focus more on Asia, and we hope to include Australia in that survey.

Overview

We asked people all over the world, "Do you think trade is good for your country?" Consistently worldwide, people answered, "Yes." For the first time, we asked more pointed questions: "Do you think trade creates or destroys jobs?" and "Do you think trade raises or lowers wages?" Overall, across 44 countries, people believe that trade creates jobs. They are less certain of whether it raises wages.

The principle argument used to support international trade is that it lowers prices. However, no one believes that, and in only one country, Israel, did half of the population believe that.

If you compare the responses between advanced, emerging, and developing countries, as defined by the World Bank and the International Monetary Fund (IMF), there's really no difference between these various economics groupings on the broad question of whether trade is good for their respective countries, but there are major differences on "Does trade create jobs?" People in advanced economies question whether it does, while those in developing economies say it indeed does. This is due to experience. The United States has seen a dramatic decline in the number of manufacturing jobs, whereas countries such as China or Vietnam have seen an increase, both cases of which are partly due to globalization. This broadly reflects people's experiences. People in advanced economies such as Japan, the United States, and Germany say that trade does not raise wages, while people in emerging markets say it does.

Comparing the views of Japan, China, the United States, and other countries

It's interesting to compare Japanese and U.S. views on whether trade is good for the country. We looked at the 13 countries to whom we've asked the question every year for the last 12 years. Three-fourths of those surveyed say that trade is good for their country. In the United States, the figure is 68%, and it is the same statistically for Japan, 69% vs. 68%, but Japan has been more consistently supportive of trade than the United States while still being consistently less supportive than the rest of the world. While any politician would love for two-thirds of the public to agree on anything, 80% of the public in most countries believe this compared with only two-thirds in Japan and the United States.

Japan is negative on the following three questions: Does trade create jobs? Does trade raise wages? Is it good if foreign companies buy Japanese companies? Compared to other advanced economies, Japan is far more negative on the first and second questions but is slightly more positive on the third question (38%). The Japanese people are far less supportive on jobs and wages than people in developing countries.

Comparing Japanese, Chinese, and U.S. views on some of these issues, Japan is very low on wages, jobs, and foreign companies buying Japanese companies, while it is not so high on prices. Japanese views and U.S. views are rather close. U.S. support is not very high at all. The Chinese view reveals a divide between the United States and Japan on the one hand and China on the other. 58% of Japanese say that foreign companies building factories in Japan is a good idea, 75% of Americans say that it's a good idea in the United States, but only 51% of the Chinese say that it's a good idea in their country. As well, nobody likes foreign-led mergers and acquisitions (M&A).

Next, we compare the Japanese and U.S. views to those of other participants in the TPP and the Transatlantic Trade and Investment Partnership (TTIP) negotiations. Obviously, Japan is not participating in the TTIP negotiations. France and Italy are not in the TPP. Support for the idea that trade creates jobs is lower among Americans, Japanese, French, and Italians than the median in TPP or TTIP countries. This suggests political problems ahead for the TPP and TTIP in that some of the most crucial countries in the negotiations show some of the lowest support on this critical issue. In selling these agreements to the public, one of the principle arguments has been that they will be good for the economy and jobs. It's not at all clear that people buy that argument.

If you slice these 44 countries a different way—by region—you can see that Asians by almost 4:1 (3.5:1) say that trade creates jobs. Europeans agree but only by slightly more than a 2:1 margin. Africans sincerely believe that trade will create jobs.

The strongest opposition and not seeing the connection

Notice that about one-sixth, one-seventh, or one-eighth of the population, depending on the region, has no opinion, which is lower than might have been expected. The Vietnamese and Bangladeshis are thoroughly convinced that trade creates jobs. This is understandable given the recent experience in countries such as theirs. The Japanese are the most likely to say that trade destroys jobs. A little over half of the Japanese say that it creates or destroys jobs, while the rest say that it doesn't matter. Job creation is therefore not a good argument for trade because people don't necessarily believe there is a connection.

The countries with some of the strongest opposition to trade are Italy, the United States, and France, where the largest portions of the public say that trade destroys jobs. Italians are negative about everything. In countries such as Spain and even Greece, public opinion seems to have bottomed out. It has actually begun to rebound a bit in Spain. In Italy, things continue to worsen in our surveys, thus it is the one country to worry about in Europe because it is not known yet where the bottom is in terms of public opinion. It is also the only country in our survey where less than half of the population wants to keep the euro.

As you can see, 38% of Japanese say that trade destroys jobs while 41% say it doesn't make a difference. The fact that 50% of Americans say that trade destroys jobs is part of the underlying political problem facing any U.S. administration in selling trade agreements to the public: in principle, people believe that trade destroys jobs.

Asians tend to believe that trade increases wages, whereas one-third of Europeans say the opposite. There are a large number of "It doesn't matter" responses to this question. Among Asians, Bangladeshis and Vietnamese say that trade raises wages, which is understandable given the wage gains experienced in their countries over the last few years. The Japanese are more likely to say that trade lowers wages, but again, most Japanese say that it doesn't matter and has no effect. The countries most likely to say that trade lowers wages are Italy, Greece, France, and the United States. There is strong concern, weariness, and skepticism in the advanced economies. Even 31% of Germans think that trade lowers wages.

Trade's effect on prices

Does trade increase or lower prices? In principle, except in the Middle East, people say that trade increases prices. This is overwhelmingly the belief in developing countries. This may be because average people equate imported goods with very expensive prices. They may be thinking about luxury goods rather than staples such as rice.

Q. Is there a possibility that Asians equate trade and development and inflation? I think their experience would be that trade has increased, countries have developed, and inflation has occurred.

That may be the case. People may equate the opening up of the economy to development, which tends to lead to inflation. For example, from surveys conducted in the United States, since prices are not rising that significantly, we know that people are more worried now about inflation than they should be logically. Americans focus on the price of gasoline, which is just one element of the overall consumer price index (CPI) that greatly fluctuates. Trying to sell trade to people is much more difficult if they believe it causes inflation, whether right or wrong.

The Japanese are really divided on the impact of trade on prices. Bangladeshis, Chinese, and Indonesians tend to believe it increases prices, which may be related to your question: faster growing economies experience inflation, and people connect this with more open economies and trade.

Foreign investment

In the past, people have expressed positive views on foreign investment. People loved inbound foreign investment and hated outbound foreign investment because they believed it was exporting jobs. We decided to find out whether people differentiate between greenfield and foreign M&A. We found support for both in developing countries. In emerging markets and advanced economies, there's a real differentiation. Division in public opinion is most visible on the question of foreign companies buying domestic companies.

Approximately one in five people only have a negative view of greenfield investment. Asians are divided with regard to foreign-led M&A. People are very divided in the eight countries which we surveyed. Europeans definitely oppose it, and Africans love it. In Asia, the Japanese are the least likely to be supportive of foreign-led M&A and are the least supportive of greenfield investment at 58%. The Japanese are very wary of both kinds of foreign investment, particularly foreign-led M&A.

A global survey conducted a couple of years ago showed that half of the Japanese don't like U.S.-style business practices. This speaks to the closed nature of the business culture in Japan. The other country that sees this is Germany. Interestingly, two-thirds of Germans don't like U.S.-style business practices. This is a challenge for trade negotiations because economists believe that trade follows investment. These deals are increasingly about investment, not about trade, and liberalizing investment leads to more trade. However, if people are wary of or opposed to investment in some cases, the future trade benefits of these agreements may be limited. 67% of Americans don't like foreign M&A either.

When the bailout of the Big Three U.S. automakers was being considered in 2009, the biggest opponent for a while was one of the U.S. senators from the state of Tennessee. Nissan Motor Corporation, which manufactures automobiles in Tennessee, wasn't going to receive any of the benefits of the bailout. It complicated the politics of the bailout, but finally the senator came around, because the loss of the Big Three U.S. automakers would have also meant the loss of Nissan's suppliers. Japan is very integrated into the U.S. economy, as are German investors.

What happens when we all get a wave of Chinese investment? Many economists argue that Chinese investment is gearing up just like Japanese investment did in the 1980s, and, by the end of this decade, we will have massive Chinese investment in Europe and the United States. There will be friction, and people's initial reaction may be negative. But we all want and need job-creating Chinese global investment, with Africans overwhelmingly in need of it. Yet, the public opinion data make it clear that there will be opposition in advanced economies.

Demographic breakdown

The views in Japan and the United States do not align with the global median on most of these trade and foreign investment issues. In some cases, the United States is more opposed than Japan. The demographic breakdown in Japan shows that well educated people are slightly more likely to view trade positively than less educated people, but a majority of both favor trade. Men are slightly more supportive of trade than women—12% vs. 7%. We find this in many societies—the United States, India, and France to a certain extent—and men are more open to globalization than women.

Young people in Japan are far more supportive of greenfield investment than older people. Less educated people are less likely to support it than highly educated people. Higher income people are more supportive than lower income people, although both support it. All Japanese are overwhelmingly opposed to foreign-led M&A—with no demographic difference.

Americans are far less supportive of the idea that trade creates jobs, or that it raises wages, or that foreign companies buying domestic companies is beneficial than are people in other parts of the world, even among other advanced economies. Looking at our demographic breakdown on these issues, women are more likely to say that trade destroys jobs and slightly more likely to say that trade decreases wages. Older people are more likely to say that trade destroys jobs than are younger people. Older people are far more worried about foreigners buying U.S. companies; such buying indicates reorganization which means people lose their jobs and older people tend to be the ones who suffer. Higher income people are more worried about foreign acquisitions than are lower income people. In principle, Democrats and Republicans think similarly on these issues.

Implications for the TPP

Finally, you can see that Japan ranks near the bottom on most of these trade and foreign investment indicators among the TPP countries surveyed. Populations in Japan and the United States are the most wary and skeptical across a number of indicators, with the Japanese being the most wary.

Q&A

Q1. My question is about the effect of trade on employment and wages. I was a little concerned. The effects of imports and exports are quite different on wages and employment. Do you have any more disaggregated questions about the effects of imports and exports?

Bruce STOKES
Our opinion was that asking people about imports vs. exports was too technical. Many people probably haven't thought much about trade to begin with. I advocated that we split the question that way. Some of our methodologists thought that it was asking too much of the respondent. Respondents hear different things when they hear the word "trade," especially with regard to particular countries. We periodically have asked people in the United States with whom they would like to increase trade. About three-fourths of Americans advocate increased trade with Japan. By contrast, when asked whether they want to increase trade with China, 45%—less than half—say yes.

In the United States, people consume enormous amounts of imports and yet they think that imports destroy jobs and lower wages. We know from other surveys that people would prefer to buy things made in the United States, but not enough to actually spend more. If you ask Americans how much more they would be willing to pay, the answer a few years ago was about $60 per year.

Globalization is very confusing and troubling to people. They think that it's good for the country, yet they say that they are not sure of the benefits for individuals. Resolving this is a political challenge.

Q2. I wanted to come back to trade, wages, inflation, and prices. Labor in developing countries is more abundant than in advanced countries, so initial wages tend to be low without trade with advanced countries. Trade equalizes wages. The responses from developing countries indicate the expectation of trade having a positive impact on wages. For advanced economies, that impact tends to be limited. If wages in any developing country rise, and assuming that wages within the economy tend to equalize, including non-tradable sectors, then you can expect prices to rise also. The positive response therefore may not be surprising.

Bruce STOKES
The rising cost of labor in developing countries feeds inflation. Advanced economies saying that trade lowers wages and developing countries saying the opposite is born out both in practice and theory. Increasing the labor supply will suppress wages because of increased competition. It's not surprising that people in many advanced countries think that trade decreases wages. The median income for men in the United States has fallen by 18% in inflation-adjusted terms since 1970. For men my age, throughout their entire adult lifetime, real wages have gone down. I think you are right—some of these results are merely a reflection of economics.

Q3. On the perception of the effect of trade on job creation, the United States and Japan are worryingly low. From this, can we really be optimistic that the United States can go all the way? The United States doesn't have trade promotion authority and even if Japan-U.S. bilateral negotiations are wrapped up…

Bruce STOKES
The most hopeful thing is that these questions were asked to Americans in 2010, and their answers haven't changed very much. We have been able to approve all of our trade agreements despite uncertainty by many Americans as to whether trade creates jobs or raises wages. However, the U.S. public does not inherently view trade positively. Even after we overcome the issues regarding investor/state dispute settlement, state-owned enterprises, pork, and cars, people are unlikely to rejoice. They have real reservations. At the very least, they're wary and skeptical. It will be a really hard sell in the United States.

The investor-state dispute settlement mechanism is a huge problem in the TTIP, particularly in Germany. This is puzzling because Germany invented it and was the first country to include it in investor agreements. In this survey, I think that people in Germany are not so sure if they like foreign investment because foreigners will do things differently. If I'm right about this deeper skepticism in Germany of foreigners buying into its economy, then that's a much bigger problem presently and in the future.

Q4. I think public opinion in India has been changing recently, and India's stance on the World Trade Organization (WTO) has been getting much more difficult, especially with regard to trade facilitation. How do you view this situation in light of the results of your survey?

Bruce STOKES
We did a demographic breakdown for India. The Indian government's position and that of the public do not agree. The Indian public in principle thinks that trade creates jobs and raises wages, and it thinks that both kinds of foreign investment are good for the country. The Narendra Modi government has made noises about opening up the Indian economy, but it hasn't really happened yet to any great extent. As you say, in the WTO, they've actually been foot-draggers. It's a perfect example of what has been known in trade politics for a long time—special interests still prevail largely in trade politics in India despite the fact that public opinion data suggest that the public is much more open to all of these things.

Q5. My question relates to the importance of influencing public opinion. The TPP includes difficult elements, including privacy issues and state-owned enterprise issues. Coordination between the government and public opinion regarding the TPP and TTIP has not been good. There will be serious difficulties getting public approval. How do you view this situation and how can we respond to it to pass important deals in the future?

Bruce STOKES
The field has been left open by business and government. In defense of these two agreements, all trade negotiations have problems, and no trade negotiation satisfies everyone. You don't hear much from the business community or from the governments involved about the benefits. U.S. President Barack Obama has said good things about the TPP and TTIP periodically, but there is not a sense of a massive mobilization of public opinion.

Even though both are good deals, it's possible that no one wins sufficiently under them so as to fight for them. People also seem reticent to talk about the geostrategic implications of these two deals. One would think that it could be said that one of the ways to demonstrate U.S. and European unity in the face of Russia is to finish the TTIP and further integrate their economies to show Russia that it is paying a price. The United States also believes that China is the major motivator behind the TTIP. Likewise, I have had senior officials say that the major reason to do the TPP is China, but nobody says it out loud. I am amazed at the fear of having this conversation with the public.

Q6. Isn't there concern in the United States that China will be offended if the hidden anti-Chinese agenda is publicly announced?

Bruce STOKES
We have to avoid the worst kind of China-bashing. That said, we know from surveys that the U.S. public can be mobilized around worries about China. The U.S. public is much more worried about China's economic challenge than its military challenge. We have to appeal to what people tell us they're worried about. I believe that making new global standards transparent, based on the rule of law, accountable and open to public comment would sell to the American public better than doing it Chinese style, where they tell you after the fact what they've been doing and that it only benefits Chinese companies.

Q7. I'm interested in how you use the research results in your center or yourself to advise governments and other organizations.

Bruce STOKES
We don't give prescriptive advice to governments based on our survey data. We share the data extensively with government officials and anyone else who is interested. We brief the White House, the Office of the United States Trade Representative (USTR), the U.S. State Department, and the business community. A core belief of the Pew Charitable Trusts and the Pew Research Center is that good public policy comes from good information. We try to provide the best information possible.

Q8. In terms of whether trade creates or destroys jobs, my view is it might depend on the share of manufacturing in an economy and whether it is increasing or declining. The "trade decreases prices" issue is a very great concern. You said you are looking for ideas about how to deal with differing perceptions of trade. One idea I had was to pose a question at the end of the questionnaire: "When we asked about trade, what did you think about? Did you think about agricultural imports or did you think about manufacturing imports?"

Bruce STOKES
That's a very good idea. It would give some insight as to what people relate to when they hear this word. That could be very illuminating.

*This summary was compiled by RIETI Editorial staff.