The Economics and Politics of Trade

Thanks to Dani Rodrik, we know the NYT fact-checked Roger Lowenstein’s article on free trade. Which is weird, because he’s 3,000 miles off when he says that "negotiators in Doha, Qatar, have been trying for years to draft a new multilateral tariff reduction" – in fact, the negotiators are at the WTO headquarters in Geneva. There was a conference in 2001 in Doha after which this round of trade negotiations was named; since then there have been subsequent conferences in Cancún and Hong Kong, as well as Geneva. But no, the WTO has not moved to the Gulf.

More subtly, but also more substantively, it’s hard to know what to make of this:

in recent years, Congress soured on trade. Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, laments, “The consensus is gone.” Even some economists have begun to suggest that trade is playing a major role in widening the income gap between rich Americans and poor — especially as more of our imports now originate in low-wage countries…

All discussions of the victims of trade ignore the considerable benefits: the exports we sell and the lower prices for consumers at home. Since poorer Americans spend a higher proportion of their incomes on low-wage imports (shoes from China, for instance), trade can also be seen as favoring the less well off.

Who are these economists who think that imports from low-wage countries are exacerbating US inequality? Lowenstein doesn’t say. He doesn’t even spell out their argument – maybe it’s meant to be self-evident that poor Americans are the same as the "minority of Americans in threatened industries" whom Lowenstein says are the only people who benefit from protectionism.

I might be misreading the article, but the impression I get is that Lowenstein thinks his anonymous economists are wrong, and that globalization doesn’t exacerbate inequality within the US. The problem is, he never quite comes out and make that case. My gut feeling is that globalization, at the margin, decreases inequality between countries while slightly increasing inequality within countries.

I don’t think I disagree that strongly with Lowenstein, although it would be nice if it was a little clearer where he stood. A smart take on trade and globalization might well involve going forwards with the Doha round while at the same time doing a lot of work on reinforcing a social safety net which is currently failing a lot of blue-collar Americans. Just scaling back the protectionist farm bill would free up an enormous amount of money to spend on retraining, wage insurance, and other means of softening the blow to globalization’s losers. And reducing agricultural tariffs would help reduce food inflation, too.

But of course these things don’t fall cleanly on the left-right political spectrum that Lowenstein talks about. Yes, Obama is to the left of McCain, and he’s more protectionist than McCain. But Ron Paul is to the right of both of them, and more protectionist than either. The big problem is electoral politics: no one wants to antagonize the sugar and orange-juice lobby in Florida, or the corn lobby in Iowa. This isn’t a case of left-wing politics versus right-wing politics, it’s a case of economics versus politics. And, as usually happens in such cases, politics, at the moment, is winning.

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