As noted here, Princeton economist Uwe Reinhardt seemed to want to start a debate on the merits of free trade vs. protectionism over at the NY Times economix blog. In this regard, he wrote:
But along with my Princeton colleague Alan S. Blinder, I do worry about what the dynamic impact of completely free trade would do to America, especially when some enterprises exhibit strong economies of scale and require longer-term investments, and other nations snub their noses are the rules of free trade.
The issue of free trade, like the issue of immigration, is too important to be left to the cerebral structures of economists. We may be just good enough to fire the opening salvo in a wider national conversation on these themes — which should be discussed and resolved by a wider group of stakeholders.
In a follow-up post, though, he seems to have conceded that there is not much to debate, and that free trade is the answer:
To be sure, American imports in the last several decades have tended to exceed American exports. The difference between these is called net exports. ...
In plain English, Americans have become used to spending more on themselves than their own gross domestic product year after year and enjoying themselves as they’ve done that.
When net exports are negative, how do Americans pay for the excess imports?
Ultimately, they pay with financial paper, namely, I.O.U.’s in the form of Treasury bonds, corporate bonds sold to foreigners, ownership claims on American corporations (stock certificates) or legal titles to real estate sold to foreigners.
Americans have taken full advantage of this external financing facility in the last several decades.
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Home-grown fiscal mismanagement at many levels, however, does not make the case against the benefits of free trade. It merely cries out for more responsible fiscal management at home –- which, at some point, might come. In principle, a nation can both be fiscally responsible and enjoy the overall benefits of free trade.
As I noted several weeks ago, the basic proposition of economists on free trade is:
Relative to a status quo of no or limited international trade, permitting full free trade across borders will leave in its wake some immediate losers, but citizens who gain from such trade gain much more than the losers lose. On a net basis, therefore, each nation gains over all from such trade.
Many of those who commented on my previous posts did not dispute this proposition, which is, in fact, hard to dispute either at the theoretical or empirical level. Rather, these readers note, the main problem with free trade is that many countries merely pay lip service to its principles but breach them through a variety of trade restrictions.
In this regard the United States is not, of course, exactly a saint, especially in agriculture. A glaring example is the American quota on sugar imports with a truly dubious –- one might even say ugly –- redistribution of income. And as the libertarian Cato Institute has remarked, even President Reagan, widely thought of as a devoted free trader, often enacted or supported protectionist policies.
Criticism of unfair trade restrictions do have validity, especially in periods of global recession, during which trade restrictions imposed by one nation can help it export its unemployment to other nations. The proper policy response to trade barriers, however, is not the abandonment of free trade but efforts to eliminate these barriers.
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.
One can only imagine what American cars would be like if domestic auto makers had not been exposed to stiff price- and quality competition from Europe and Asia.
Most of those who commented on my posts did recognize that a liberalization of foreign trade, while it is beneficial over all to a nation, can lead to significant redistributions of economic privilege within that overall national benefit. That is a valid concern, which naturally pushes the issue into the political forum.
My argument is that economists, in making the case for free trade, should be more understanding of this political dimension than they often are. That might make their message more effective.
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The question is whether those who gain from what we celebrate as “disruptive innovations” owe the losers compensation for their loss.
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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.
Unfortunately, too many economists decry that approach as a welfare state –- and that makes selling the case for free trade that much harder.
So his view seems to be that free trade is good, as long as there is an adequate safety net. That seems like a pretty conventional view of the issue held by many free traders, and doesn't suggest that there is much of a debate at all about free trade vs. protectionism.
Now, what would be an interesting debate for the NY Times is "what is free trade" / "what should be in trade agreements."
