Monday, May 19, 2008

Trade Bashing Paradox

James Surowiecki has a very logical article on free trade in the New Yorker. Barack Obama and Hillary Clinton have both talked of the downside of free trade, but have not spent a single minute on the benefits. As Surowiecki points out, the losers from free trade are also the winners:

It’s an understandable view: how, after all, can it be a good thing for American workers to have to compete with people who get paid seventy cents an hour? As it happens, the negative effect of trade on American wages isn’t that easy to document. The economist Paul Krugman, for instance, believes that the effect is significant, though in a recent academic paper he concluded that it was impossible to quantify. But it’s safe to say that the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. So standing up to China seems like a logical way to help ordinary Americans do better. But there’s a problem with this approach: the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.

Free trade is not a free lunch; there's no such thing. There are definitely losers from free trade - at least in the short run. The difficulty in identifying the winners is part of the problem free traders face when trying to convince others of their argument. The winners are widely dispersed and the losers are more easily identified.

But the reality is that if we toughen our trade relations with China the benefits will be enjoyed by a few, since only a small percentage of Americans now work for companies that compete directly with Chinese manufacturers, while average Americans will feel the pain—in the form of higher prices—far more quickly and more directly than rich Americans will. Obama and Clinton, in their desire to help working Americans—and gain their votes—are pushing for policies that will also hurt them.

Obama and Clinton are smart enough to understand the arguments and I suspect they are not nearly as opposed to trade as they say. That they will argue against the interests of the very voters they are courting just shows the lengths to which they will go to capture the presidency. McCain does the same thing of course, just on different topics like global warming, but at least on trade, McCain talks a better game than either of the Democrats.

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