This post is a response to a NY Times piece from a couple weeks ago called "Why It Seems Everything We Knew About the Global Economy Is No Longer True," by the Times' global economics correspondent Patricia Cohen. In my view, there are a number of overstatements and mischaracterizations in the piece that are worth talking about, because they come up often in trade policy discussions these days. I will note at the outset that I'm not dealing with every issue in the piece, so there is plenty of room for others to chime in as well. (Dan Drezner responded to it here.)
The piece starts out with an assertion that "it has suddenly seemed as if almost everything we thought we knew about the world economy was wrong":
A lot has happened between [2018] and now: A global pandemic hit; war erupted in Europe; tensions between the United States and China boiled. And inflation, thought to be safely stored away with disco album collections, returned with a vengeance.
But as the dust has settled, it has suddenly seemed as if almost everything we thought we knew about the world economy was wrong.
If everything we thought was wrong, I hope this means we are going to rethink policies such as anti-dumping and import restrictions on baby formula!
More seriously, I think her assertion overstates what's going on in U.S. international economic policy these days. For those of us in the field, we've seen today's debates about the direction of trade policy and the role of government in the economy before -- in fact, pretty much all along. (Fred Bergsten was lamenting stalled progress on trade liberalization back in 1971!)
From what I can see, it's not that suddenly what we knew was wrong, but rather that the same debates are taking place and one side -- the domestic industry and associated unions -- is doing a little better than it did 10 or 20 years ago. How much better? That's hard to say. Two successive administrations have adopted language that is sympathetic to protectionism and more skeptical of trade liberalization, which makes it feel like a big change is upon us. However, the actual policies have not changed as much as some people think. (For example, Buy America procurement programs have been with us for a long time.)
It's true that the pandemic was a new variable in the trade equation, but war, great power competition, and inflation have been with us in some form and to some degree for a long time, and the trade regime is very familiar with them. As for the pandemic, it should have taught us some lessons, such as the importance of stockpiling goods that will be needed in emergencies, but I'm not sure how much we've learned.
Let me turn now to some specific topics that Cohen raises in the article.
The role of free markets
Cohen presents the last 30 years of policy as dominated by free market thinking:
The economic conventions that policymakers had relied on since the Berlin Wall fell more than 30 years ago — the unfailing superiority of open markets, liberalized trade and maximum efficiency — look to be running off the rails.
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While the collapse of the Soviet Union cleared the way for the domination of free-market orthodoxy, the invasion of Ukraine by the Russian Federation has now decisively unmoored it.
Where are people seeing "domination of free market orthodoxy" in policy, trade or otherwise? It's true that there has been a bit of deregulation and privatization in some sectors, but there has also been a high degree of regulation and government involvement in the economy in other sectors (as well as permanent stimulus in fiscal policy). The reality is that the U.S. (and all the other market-oriented democracies) have mixed economies. There are some free market folks in each one who are making the case for their position, but if you tell them they are "dominating" things, you are going to hear a long burst of laughter.
Similarly, with regard to policymakers relying on "the unfailing superiority" of open markets, liberalized trade, and maximum efficiency, there are a handful of people who believe in this, but they have never been the most influential, as evidenced by countries' actual policies.
I understand that progressives have been frustrated over the years by the mix of free markets and government intervention in the economy, because they prefer more government intervention. But free market folks have been just as frustrated on the other side.
Can trade stop war?
Cohen then tries to rebut claims that trade brings peace:
The idea that trade and shared economic interests would prevent military conflicts was trampled last year under the boots of Russian soldiers in Ukraine.
But this is an overstatement of what people believe here. No one is saying that economic integration will prevent all military conflict. But surely we are better off in terms of war and peace while trading with each other than not, right? Think of Western Europe before WWII and Western Europe after WWII, when they got started with their deep economic integration.
As to Russia-Ukraine, I've read enough of the debate over why Russia invaded Ukraine to know that trade is basically a non-factor. Trade can't stop a war when someone is determined to have one.
The actual argument about trade and peace is more nuanced: Open trade generally contributes to peaceful relations. It's possible that somewhere along the line this point was overstated by someone, but the more nuanced version of the argument seems pretty strong. If someone wants to argue that peace is more likely with trade restrictions in place than with open trade, go for it, but I don't think many people will be convinced.
Did trade lead to anti-immigrant views?
Cohen tries to connect trade to anti-immigrant sentiments:
Companies embarked on a worldwide scavenger hunt for low-wage workers, regardless of worker protections, environmental impact or democratic rights. They found many of them in places like Mexico, Vietnam and China.
Television, T-shirts and tacos were cheaper than ever, but many essentials like health care, housing and higher education were increasingly out of reach.
The job exodus pushed down wages at home and undercut workers’ bargaining power, spurring anti-immigrant sentiments and strengthening hard-right populist leaders like Donald Trump in the United States, Viktor Orban in Hungary and Marine Le Pen in France.
I occasionally hear the view that trade has led to anti-immigrant sentiment, and I'm a little surprised by it. I know people who are anti-immigrant, and I've talked to them about it, and trade just doesn't enter into it at all. These particular people are not from areas that have been affected by trade, and they don't like immigrants for the traditional reasons people don't like immigrants.
Is it possible that someone, somewhere was hurt by trade and that translated into anti-immigrant feelings that weren't otherwise present? Yes, it's possible, but mostly in the "anything is possible" sense. The practical reality of anti-immigrant sentiment is very different, and pointing to trade as a significant cause obscures the main reasons for anti-immigrant sentiment. If we are going to deal with the issue of anti-immigrant sentiment, we are going to have to confront it head on, rather than blaming it on something else.
Does trade bring democracy?
Cohen complains that trade did not bring democracy as was promised:
The proliferation of economic exchanges between nations also failed to usher in a promised democratic renaissance.
Communist-led China turned out to be the global economic system’s biggest beneficiary — and perhaps master gamesman — without embracing democratic values.
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The World Trade Organization was established in 1995 to enforce the rules. China’s entry six years later was seen as transformative. And linking a huge market with 142 countries would irresistibly draw the Asian giant toward democracy.
How and why do governments move from authoritarianism to democracy? South Korea joined the GATT in 1967 and became a democracy a couple decades later. Did trade contribute to this at all? Without its integration into the trading system, would South Korea have become a democracy sooner or later than it actually did? These are difficult questions to answer!
Nevertheless, if you have any confidence in democracy (and I still do, despite all the people at the extreme wings of the political spectrum losing faith in it!), it seems natural to think that when people in authoritarian countries have more contact with democracies, they will appreciate the benefits and internalize those views. That doesn't lead to a definitive timetable for when a whole country will shift away from authoritarianism, but it probably helps a bit.
On the other hand, I think that calling on "economic exchanges" to "usher in" a "democratic renaissance" demands too much. I don't know who "promised" this, but if someone did, they shouldn't have. The reality of what they said is probably more along the lines of a "hope" than a "promise," though.
Climate change and inequality
Finally, Cohen talks about trade's impact on the climate and on equality:
The favored economic road map helped produce fabulous wealth, lift hundreds of millions of people out of poverty and spur wondrous technological advances.
But there were stunning failures as well. Globalization hastened climate change and deepened inequalities.
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In the United States and other advanced economies, many industrial jobs were exported to lower-wage countries, removing a springboard to the middle class.
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Nor were they able to prevent damaging environmental fallout. Transporting goods around the globe increased greenhouse gas emissions. Producing for a world of consumers strained natural resources, encouraging overfishing in Southeast Asia and illegal deforestation in Brazil. And cheap production facilities polluted countries without adequate environmental standards.
There's more research here than I feel like digging up at the moment, but let me just ask a couple pointed questions:
-- Did globalization actually hasten climate change? Would a shift away from trade and towards smaller-scale, less efficient, domestic-oriented production reduce carbon emissions?
-- Did globalization deepen inequality? Compared to when? The 1950s? The 1980s? Do some people thing we were more equal back then?
Conclusions
Over the past few months, I've come across a number of pieces declaring that we are seeing the end of free trade/globalization, or the end of "neoliberalism." In my view, these pieces are not going to age well. International economic policy is certainly in flux at the moment, but most of the pieces commenting on this aren't doing a very good job with the nuances of what we had before, how things are changing, and where it all might be going.
