Despite being one of the most pressing policy choices facing America, and despite having been one of the biggest controversies in the last, oh, 400 years of economic history, free trade rarely gets a real debate in this country. For the most part, its superiority is just assumed, and the word "protectionist" is treated like, say, "fascist": something just obviously, axiomatically bad and requiring no serious thought.
So it is gratifying to see economist Uwe Reinhardt of the New York Times and Princeton University attempt to engage in a real debate on the issue.
He is a free trader. Which is what makes it so interesting that a good look at what he has to say actually reveals a lot about what's wrong with free trade. (I apologize in advance to Prof. Reinhardt if I have misunderstood anything he said.)
For example, he writes:
Public discussions on foreign trade sometimes convey the impression that China and the rest of the world make everything, as the United States sits idly by, importing their stuff and going to hell in a handbasket, to use the vernacular... Goods and services produced here still represent the great bulk of gross domestic product in the United States. (Original here.)
Technically, he is correct. Well over 80% of what America consumes is produced in America. Unfortunately... this metric is totally irrelevant to whether free trade is good for us or not. It doesn't prove a thing either way. (Anyone who thinks it does is welcome to write me and explain why.)
What does have logical traction here? This: as I've argued in several articles of my own, the U.S. trade deficit shows an America that is consuming more than it produces. This is a problem because it means that over time, we must either sink into debt or sell off existing assets in order to keep running this giant bar tab with the rest of the world.
Therefore, because free trade -- or America practicing it while our major trading partners practice mercantilism -- arguably causes this trade deficit to happen, free trade is doing us harm. Over time, it leaves us poorer than we would be if we obtained reciprocity under some kind of managed-trade regime.
Bottom line: even if "Everything in made in China now!" is a myth, we've still got a big problem.
Next up, let's try this assertion by the good professor:
After all, imagine what life would be like in the United States in the absence of foreign trade, with all products we use daily made domestically -- many would be far more expensive than they currently are, and many would be likely to be of inferior quality to those now available. (Original here.)
Talk about a straw man! I don't know of a single protectionist in the United States who literally proposes to abolish imports entirely. That strange philosophy is found only in places like North Korea, which does (at least pretend to) ban imports on grounds of its ideology of juché or self-reliance.
Bottom line: trade and free trade are not the same thing, and one can certainly oppose the latter without opposing the former.
Now let's look at an assertion that doesn't constitute a falsehood on the professor's part per se, but does expose a big falsehood that free traders spout all the time. Discussing what to do about people who are harmed by free trade, he writes:
A far better approach would be to have in place a solid, general economic safety net that helps all families whose economic base is disrupted through forces beyond their control, whether such disruptions originate in foreign trade or domestic developments. (Original here.)
The problem here is all the libertarians and small-government types who like free trade because they think it means the absence of government interference in our lives. This is an appealing philosophy and not without merit, but they're wrong in the case of free trade. As Prof. Reinhardt notes, even if free trade is a good thing, it's not a small-government policy. To function, even as free traders like him assert it should, it needs big government to step in and clean up the various messes it makes.
Bottom line? Free trade isn't economic freedom, it's laissez faire on life support from big government. (Wall Street, didn't we see this movie before?)
Prof. Reinhardt deserves a tip of the hat for being honest about this fact. He has a similar (true, but tending to debunk his own side) point here:
Whether a fellow American gains from a trade or someone in Shanghai does not make any difference to most economists, nor does it matter to them where the losers from global competition live, in America or elsewhere. (Original here.)
This should be a real tip-off for ordinary voters not to trust most economists. If they don't care who wins and who loses from trade, why should we heed their advice on the subject or let them advise our government?
The issue here isn't that economists ought to be America First nationalists. That's a matter of political opinion, and they're entitled to whatever ideological leanings they fancy. Instead, the issue is twofold:
First, granted, it is indeed arbitrary from the point of view of pure economic science whether a given policy is good for America or Timbuktu. But it's equally "arbitrary" that I'm me and you're you! I don't balance my checkbook for my own financial benefit because of some ideological conviction that I'm special; I do it because I'm me, just as you do. (And just as I must assume most of these oh-so-cosmopolitan economists do.)
Second: it is really easy to use the nation-agnostic objectivity of pure economics to slide into the argument that we somehow shouldn't care about national economic well-being. But that doesn't follow. From the point of view of pure economics, internationalism is just as much an arbitrary ideological assumption as nationalism. Just because biology can't take sides between diseases and the people that diseases kill, doesn't mean medicine can't. Indeed, medicine is crazy if it doesn't.
So while we can all thank Prof. Reinhardt for opening up some needed public debate about free trade, he's dreaming if he thinks it's settled in favor of free trade.
Follow Ian Fletcher on Twitter: www.twitter.com/IanFletcher
http://findarticles.com/p/news-articles/examiner-the-washington-dc/mi_8118/is_20100709/obama-revs-corporate-welfare/ai_n54395668/
Obama revs up corporate welfare | Examiner, The; Washington, D.C. | Find Articles at BNET
"President Obama is not "anti-business," as many conservative critics charge. He's just anti-free market. To better understand this distinction, just look at his latest initiative: trying to double U.S. exports in five years.
Obama's National Export Initiative, embraced by the big business lobby, is a raft of subsidies, handouts and "public-private partnerships." Obama uses the phrase "free trade" to describe this push, but there's nothing free about corporate welfare.
The heart of Obama's initiative is accelerating the activity of the Export-Import Bank, a government agency that subsidizes U.S. exports. Ex-Im lends money directly to foreign companies or governments -- or guarantees private bank loans -- so that the foreign buyers will buy American.
Calling Ex-Im "corporate welfare" isn't a slur -- it's a description. The White House brags that, as part of Obama's export initiative, "Ex-Im has more than doubled its loans to support American exporters from the same period last year. ... "
Perhaps to blunt the corporate-welfare charge, the administration portrays Ex-Im as a savior of small business..."
"As long as emerging economic forces, including India and Brazil as well as China, are able to use their “developing” status to enable their companies to undercut foreign competition, they will have little incentive to join the OECD club. The OECD ought to allow all member countries in direct competition with these non-member countries to match their terms. Until the Chinese government steps back and lets its companies fight on their own, other governments, including Uncle Sam, will have to step up."
http://palisadeshudson.com/2011/03/a-trade-victory-made-in-america/
We use to make a lot of solar cells in basically automated plants here in America now most of those companies are finding partners in China and closing their American plants. China exports as late as I can get figures for 2007 99% of their solar cells! Intel built its largest basically automated micro chip plant in Viet Nam. These moves were not prompted by labor cost since these plants are largely automated!
They use dirty coal to capture those jobs and markets and the funny thing is how much smog today in California is of Asian origin.
I believe this nation has a responsibility to the world to lead! Restricting use of fossil in America to protect its citizens but allowing products to be sold here made from fossil fuels is counter productive for the health of the world citizens.
I believe the U.S. should impose a tax or tariff on all products sold here based on their environmental impact, transportation impact, and how sustainable the product is!
Right now we only have these taxes on domestically manufactured products!
I think this sets a bad example for protecting the environment and other citizens of the world!
I see, the trade deficit is not the problem in your estimation, it is that we trade with ‘foreigners’? I know what you mean. I am from Arizona, and every year we buy more cars and other stuff from Michigan than they buy from us…that must make Arizona more poor? We give them our money and they give us high-quality, cheap cars…but it would be better if we stopped making silicon wafers or whatever we make, & instead build our own automotive factories to compete with Michigan with our expensive cars. Thanks for pointing that out.
Thanks for mounting out a second very important point, labor is a very small factor in the manufacturing process. Technology, as I have been saying, is a major factor. Thanks for making my point.
Other factors, mostly tax and regulatory are killing our industries. Most other countries, including the OECD have a territorial tax system (not a global tax system), low corporate taxes and low capital gains taxes; but we in America are so worried about the rich getting richer, that we have a tax system that forces owners of factories and capital to keep their investment and investment returns out of the US. Net result is less return investment than would naturally occur in the US and less jobs.
America consumes the most oil, coal, etc. of any nation…Maybe you have it wrong? Maybe Asian pollution is caused by America.
More taxes mean less jobs, I thought you were against that.
Kai
As for tax laws I agree ours are not competitive with Asia!
It is not really technology difference it is energy cost! As I said he swings he misses the point!
My point is restricting fossil fuel use here but allowing free trade with nations that use it to the point of harming the world is just wrong!
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That's nice flatlander, but when there is a trade deficit between Michigan and Arizona, an American (that's right I said an American) can move from Michigan to Arizona or Arizona to Michigan to even out the trade deficit. To even out the trade deficit between nations would require massive amounts of people changing nationalities, and I don't think any American would want to give up US citizenship and become a Chinese Communist. Is that what you are suggesting Americans do? Give up their Citizenship?
Since we are only 4% of the global population but 20% of all global manufacturing output, actually couldn't other manufacturing nations insist that America is unfairly capturing global market share, through cheap goods produced by technology, and that we should lower our share of global output to 4%?
Finally, how are tariffs going to help raise wages. We have been producing more and more than we ever have, we produce double what we did in 1975, but jobs and manufacturing wages have gone down. How is it possible that we could produce more but with less labor and cheaper? Technology! No amount of tariffs will put that genie back in the bottle. Sorry.
Kai
And then there is Apple, the company so revered by the president as the perfect model for the future American economy that Steve Jobs sat at his left hand during dinner. (Zuckerberg sat on his right.) Apple has about 50,000 direct employees, 25,000 or so in the U.S. and 25,000 overseas. And of course it has the brand loyalty of millions of American consumers"
So in essence we are supposed to be happy that our loss of manufacturing jobs has given us the opportunity to base our new economy on technology jobs, half of which are oursourced.
The giant sucking sound gets louder and louder.
Just never could get my head around this!
I got an F on an economics paper when asked about Free Trade!
My answer on the definition of Free Trade was a system where the nations/corporations that get away with treating their citizens/workers and environment the worse make the most profit and win!
I'm still arguing that answer! I feel as strongly today as in 1973 that I was right. Became an Chemist/Chemical engineer we value historic results!
Who disagrees!?!?!?!
You state:
‘This should be a real tip-off for ordinary voters not to trust most economists. If they don't care who wins and who loses from trade, why should we heed their advice on the subject or let them advise our government?’
The voter doesn’t care because the voter/ who is also a consumer in those case has also come out ahead (in this case by getting a cheaper product). Why should the voter/consumer be officially forced to spend more money than they have to so some union worker working in a politically-favored industry can get paid more and live better. It is a form of perverse taxation, regressive in nature, that penalizes families trying to save money and rewards those who have senators in their corner. Undemocratic, that is why the voter cares.
You state:
‘Therefore, because free trade -- or America practicing it while our major trading partners practice mercantilism -- arguably causes this trade deficit to happen, free trade is doing us harm.’
Actually we are consistently ranked as one of the most protectionist developed markets around, after Russia (which is still considered a developing market).
Kai
The proof is in the dollars!
If we have a trade surplus then we are by definition a protectionist market! If we have a huge trade deficit by definition we must have a very non-protected market!
See this is why most people don't trust economist! They take a situation that is obvious and say the opposite!
You state: ‘If we have a trade surplus, we are ‘by definition’ a protectionist market!’ Er…wrong. Running a trade surplus could infer a protectionist market but it by no means defines a protectionist market.
A trade deficit also does not mean that we are not protectionist, it just means that we export less than we import, and there can be many reasons for that, a few that come easily to mind is that even with tariffs applied and subsidies applied, overseas manufacturers are so cheap, that we still purchase those items or, more likely we import so much raw and semi-finished materials in our quest to produce the 80% of what we do produce for local consumption, that we run a deficit.
Case in point, Petroleum alone was 41% of our trade deficit in 2010 (44% to date this year), and is the primary reason that Canada is our top trade partner. It will most likely be over 50-55% by the end of the year according to projections. http://www.census.gov/foreign-trade/statistics/graphs/PetroleumImports.html Want to reduce the deficit by 50%, drill-baby-drill, or nuke-baby-nuke.
By the way another way to say trade deficit is to say capital accounts surplus and not all of it is through the purchase of debt, America was the biggest recipient of FDI in the last decade, investment in stock and debt is an Investment in America that we benefit from.
Kai
I've seen towns fall apart after losing a factory; first you get a wave of unemployment directly from factory layoffs, then you get a wave of unemployment from people who use to sell services to those factory workers, and finally you get a wave of layoffs from government employees because the town tax base has become too small to support them.
Now imagine this scenario on a scale of thousands of factories as has happened in the last 20 years. Yeah, consumers might get the product for cheaper but that means nothing in the new state of the economy. The only way to acheive your proposed free trade without increasing taxes or taking more debt would involve scrapping all social assistance and health care spending or dramtically lowering living standards, would people vote for that?
You raise a common argument and it is not without some gravity.
First, I would argue that with only 4% of the global population we are over 20% of the global manufacturing output. It used to be well over 30% but that was in the 50% and early 60% when all other countries were still reeling from WWII or were locked down, Russia and China. Times have changed but we are still punching above our weight.
Secondly, I would add that since the 1970’s our manufacturing output has continued to climb, and in constant 2005 dollars we are double what we were back in those days (though it dropped a bit during the great Recession). How is it that we produce more but jobs go down? Why is manufacturing output and manufacturing jobs inversely correlated? Technology. Routine, easily sequenced jobs are disappearing because of tech. Get educated if you do not want to be disintermediated.
From 1990 to now, the auto industry has been a net job growth industry. It took a hit in the early 1990’s when tariffs on steel hurt many of our manufacturing industries (as ALL tariffs do) but it is doing well in general. Detroit, and cities like Detroit are failing because of big government, big labor, and big taxes; not international trade…the jobs are there for cities like Detroit.
Finally, take out oil (41% of our deficit), take out capital goods used in manufacturing, raw materials, and what is so scary?
Kai
It's very easy to purge an email server.