Trade Wars Posted by David Shorr

I share Fareed Zakaria's concern about the potential international fallout of American protectionism:

For the rest of the world—particularly poorer countries—nice speeches about multilateralism are well and good. But what they really want is for the United States to continue its historic role in opening up the world economy. For a struggling farmer in Kenya, access to world markets is far more important than foreign aid or U.N. programs. If the candidates think they will charm the world while adopting protectionist policies, they are in for a surprise.

Actually, I made a similar point in response to Tom Friedman's argument that action on global warming would be the cure for what ails our international reputation. I don't want to underestimate the political temptation here, though. NAFTA seems to have lodged in the political consciousness as the symbol of economic insecurity. I fear we're in Framingland here, where public perceptions will follow the rule of 'if the facts don't fit the narrative frame, reject the facts.'

Don't get me wrong, I'm a good Calvinist and believe in resisting temptation. Zakaria is correct (and Matt seems to agree) that, temptation or no, the emphasis belongs on economic insecurity itself. We need to take a serious look at the social safety net to cushion the blow of dislocation. For one serious look, take a look at The Case for Wage Insurance by Robert LaLonde, published by CFR.

Comments

[Mike M.]

David,

You're right that the world wants and expects that we'll continue to lead the open markets charge. But, we could do it in a way that's better for people in the US while also treating our trading partners better.

One complaint that emerging economies have with the US and with the institutions we seem to control like the World Bank and IMF is that instead of demanding labor and environmental standards as part of our free trade agreements, we demand that our partners privatize industries like water, power and telecom -- services that these governments had been providing for their own people. Who benefits from that? First world multinationals. Certainly not the people who use the services and certainly not American workers. What if we stopped demanding that and started demanding labor and environmental standards? I think that our workers would be happier and so would the workers who make our imports.

We don't have to be protectionist. We need new priorities.

[David Shorr]

I know enough about trade and economics to be dangerous. The only things I can say with confidence are 1) reversal of liberalization and erection of trade barriers would be disastrous, not least for the world's poor and 2) the debate is in serious need of an update. Among the assumptions that need to be checked:

-- With the way that current views of development have discredited major elements of the Washington Consensus as severely limiting the public sector, are the IMF and World Bank still pushing the same conditionalities?

-- Yes, labor rights are critical, both at home and around the world. Strengthening workers rights makes a big difference in working conditions and wages. But are trade agreements the right lever on that problem?

-- Related question, are we sure that globalization lowers living standards for producers of exports? A lot of research seems to debunk the idea of a race to the bottom. That doesn't mean that we don't keep pushing for labor rights; we absolutely should. But it does undercut the idea that trade should be slowed to improve the plight of workers.

Echoing the line of my post, if you want a populist economic agenda, let's talk about the stagnating wages of American workers, the obstruction of labor organizing, and un-American levels of income inequality (see Krugman, 'Conscience of a Liberal'). So however complicated these things are, I'm pretty sure trade is being scapegoated.

[Mike M.]

David, those are great points. My take on the "race to the bottom" question (and I'm in the same "knows enough to be dangerous" boat that you are) is that it depends on what's being exported. Manufactured products can lead to increases in living standards over time, so long as the manufacturing isn't done in sweat shops. Resource exporters (commodities) tend to see falling standards of living for most people but major growth for the rich (who control the resources). So the effect has a lot to do with what a country is exporting.

Are the IMF and World Bank still forcing countries to privatize public services? Maybe not so much as they used to but... the damage has already been done, hasn't it?

[David Shorr]

Mike-- Certainly no difference between us on the problems associated with mineral resources (Paul Collier's 'natural resource trap'). While we're straightening out our categories, don't forget that agriculture produces commodities as well, is which where some of the biggest trade barriers lie. But going back to the original point, you're right that I was talking about manufactured exports and working up the ladder of products of greater value.

[msg]

I would love to hear your comments about something very specific that I'm surprised you haven't written about yet - the reaction to the Defence Department's contract award to Northrop Grumman and EADS.

Obama and Hilary immediately express concerns about US jobs. Pelosi calls a hearing. Washington and Kansas delegations turn red in the face. Yet, no one denies that the Northrop EADS product is vastly better than Boeing's. And as much of the EADS work will take place in the US as in Boeing's offering. At the end of the day, the only thing that seems to matter is the first 'E' of EADS and Boeing's American legacy.

[David Shorr]

Seems to me the controversy around the refeuling aircraft fits the same pattern I'm highlighting -- populism = economic (and social) nationalism. A lot of this populism looks like short-term gain and long-term disaster. These episodes (Dubai Ports was another) are dripping with symbolism but ultimately, I think, a distraction.

Hey, my name isn't on a ballot, but I think the answer is to lower the temperature, not blow them out of proportion, and not resist economic change with domestic politics. Symbols are convenient, easy, and offer to make your argument for you very efficiently. You have to admit there's a certain appeal.

The strange thing here is that you can still talk about all of the compelling issues and challenges without blaming globalization: wage stagnation, rising economic inequality and insecurity (incl. health care & sub-prime), policies stacked against the labor movement, workforce competitiveness, green economy jobs...