For a Better America and World, Free and Open Trade

 

Trade is good for America. This from the Trump administration’s Office of the US Trade Representative sums up the benefits well: “The United States is the world’s largest economy and the largest exporter and importer of goods and services. Trade is critical to America’s prosperity — fueling economic growth, supporting good jobs at home, raising living standards and helping Americans provide for their families with affordable goods and services.”

With apologies to Han Solo in Star Wars: The Force Awakens, “Crazy thing is, it’s true. The faster growth, the higher living standards — all of it. It’s all true.”

And not just for a wealthy, technologically advanced nation like the United States. In the new NBER working paper “Does Trade Reform Promote Economic Growth? A Review of Recent Evidence,” economist Douglas Irwin finds that research shows a big economic impact from freer and open trade for the countries that need it the most. From the paper (bold by me):

Economists have been interested in the relationship between trade restrictions and economic growth since the time of Adam Smith. The great trade reform wave of the late 1980s and early 1990s provides new historical evidence on the matter. There is no one perfect method that can provide decisive evidence on this question, so researchers have tried to understand the relationship using a variety of approaches.

The findings from recent research have been remarkably consistent. For developing countries that are behind the technological frontier and have significant import restrictions, there appears to be a measurable economic payoff from more liberal trade policies. As table 1 reports, a variety of studies using different measures of policy have found that economic growth is roughly 1.0–1.5 percentage points higher than a benchmark after trade reform. Several studies suggest that this gain cumulated to about 10%–20% higher income after a decade. The effect is heterogeneous across countries, because countries differ in the extent of their reforms and the context in which reform took place.

At a microeconomic level, the gains in industry productivity from reducing tariffs on imported intermediate goods are even more sharply identified. They show up time and again in country after country. Some questions remain about how much of the economic growth following trade reform can be attributed to trade policy changes alone, as other market reforms are sometimes adopted at the same time. Even if the reduction of trade barriers accounts for only a part of the observed increase in growth, however, the cumulative gains from reform appear to be substantial. As Estevadeordal and Taylor (2013, 1689) ask, “Is there any other single policy prescription of the past twenty years that can be argued to have contributed between 15% and 20% to developing country income?”

So a more prosperous world than otherwise, giving trade a definite moral dimension. And this is as it has been for some time. As Robert Tombs writes in “The English and Their History,” regarding the free trade program of 19th century Britain:

From the 1820s onward there developed a visionary program to transform the world by means of free trade — the closest modern England ever came to a national ideology. As a children’s book put it, the aim was that “everybody may … be joined together in love and trade, like one great family; so that we may have no more wicked terrible battles, such as there used to be a long, time ago.”

Over the whole period in which it operated, c.1850 to c.1930, free trade probably made Britain slightly poorer. It meant that no British government could use its economic bargaining power to force other governments to accept free entry of British goods, which in spite of confident hopes of idealists and economists, few ever did. Britain simply allowed free access to its domestic market to all…

It may be that this was done partly due to miscalculation … but there is no doubt that free trade seemed genuinely altruistic and was unconditionally supported by religious groups, the anti-slavery movement, trade unions, women’s associations, and peace campaigners in hopes that all would eventually see the light. The dogma was that commercial freedom would eventually bring political freedom and international harmony, and hence the dissolution of empires, the liberation of serfs and slaves, the end of the “antagonism of race, and creed, and language,” and the abolition of “gigantic armies and great navies” — which states would no longer need, or, in the absence of tariff revenue, would be able to afford.

There were indeed some real benefits. As we have seen, workers got cheaper food. More widely, Britain’s commitment to free trade stimulated world trade for more than half a century. … Free traders were universalistic; all mankind was morally and intellectually the same, human values were transnational, racial and ethnic differences were irrelevant, and civilization and progress were the right and destiny of all. … [After the Great Exhibition of 1851], Manchester cotton merchant, Absolom Watkin, noted in his diary: “Our country is, no doubt, in a most happy and prosperous states. Free trade, peace, freedom. Oh happy England.”

Published in Economics
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There are 11 comments.

  1. Mark Camp Member

    Good article. I only saw one error: it isn’t true that free trade creates jobs.

    • #1
    • June 11, 2019, at 2:07 PM PDT
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  2. Locke On Member

    Trump’s comments today inspired me to run a certain search re the OP author. I’ll just drop this here:

    https://www.uschamberfoundation.org/bio/james-pethokoukis-1

    • #2
    • June 11, 2019, at 5:43 PM PDT
    • 2 likes
  3. Unsk Member

    That’s all well and good. But the only major country doing any Free Trading is America. So these fancy dancy theories from Adam Smith and Ricardo really don’t apply in this highly manipulated export import world of massive trillion dollar QE subsidies, hidden tariffs, theft of intellectual properties, debt trap infrastructure deals with down on their luck nations, and a massive military buildup by our number one enemy China that threatens our very existence that was built upon almost solely from the profits of these supposedly Free Trade arrangements.

    When are you lying “Free Traders” going to address China’s demand for technology transfers and their theft of Intellectual property that was supposedly going to end per the conditions of their entry into the WTO? In fact how can one have a ‘free trade agreement with a Country that has consistently lied and cheated on past agreements, and was never called out by our Deep State enforcers of those agreements?

    When are you lying “Free Traders” going to address how our ‘free trade ” with China is funding our own demise and China’s threatening massive military build-up ? Where are the so-called benefits of that “free trade” if China in the end subjugates us ?

    “the gains in industry productivity from reducing tariffs on imported intermediate goods are even more sharply identified. They show up time and again in country after country.” – Those alleged “gains in industry productivity” have not resulted in gains in wealth for the middle class or working classes in either America, Europe or Japan, in fact they have led to economic dissolution for much of the middle class – so what is the point?

    • #3
    • June 11, 2019, at 8:00 PM PDT
    • 2 likes
  4. lowtech redneck Coolidge

    Locke On (View Comment):

    Trump’s comments today inspired me to run a certain search re the OP author. I’ll just drop this here:

    https://www.uschamberfoundation.org/bio/james-pethokoukis-1

    Yeah, advocating open borders and shilling for censorious Big Tech companies is not a good way to promote support for free trade.

    • #4
    • June 12, 2019, at 3:50 AM PDT
    • 3 likes
  5. Jerry Giordano (Arizona Patrio… Member

    I think that the flaw in Mr. Pethokoukis’s argument is the conceptualization of something being “good for America.” What does that mean?

    First, there is an aggregation problem. It strikes me as quite obvious, at least in principle, that something can be good for some Americans and bad for other Americans. Free trade may be one such something. Or perhaps not. This is an empirical question that is not discussed or considered by Mr. Pethokoukis.

    Second, there is a measurement problem. Economists tend to evaluate “good” in terms of greater GDP or income. There are other definitions of “good.” For example, a policy requiring able-bodied adults to work at least 50 hours per week might increase GDP, but it is not clear that this would be a good thing (if “good” is defined more broadly). This is a question of moral values that is not discussed or considered by Mr. Pethokoukis.

    Third, there is a game theoretic problem. Even if it is true that free trade is beneficial, adopting a pure free trade policy with respect to another country that does not reciprocate is not necessarily the best strategy. Mr. Pethokoukis’s thesis is that both countries would be better off under a free trade regime. But if one country does not agree, it might be a better strategy to decline to engage in free trade with such a country, in order to persuade it to liberalize its trade policies. This is a question of tactics that is not discussed or considered by Mr. Pethokoukis.

     

    • #5
    • June 12, 2019, at 9:37 AM PDT
    • 1 like
  6. Randy Weivoda Moderator

    Unsk (View Comment):

    When are you lying “Free Traders” going to address China’s demand for technology transfers and their theft of Intellectual property that was supposedly going to end per the conditions of their entry into the WTO?

    When are you lying “Free Traders” going to address how our ‘free trade ” with China is funding our own demise and China’s threatening massive military build-up ?

    Cool it, Unsk. Just because someone disagrees with you on policy doesn’t make them a liar.

    • #6
    • June 12, 2019, at 10:34 AM PDT
    • 1 like
  7. Unsk Member

    Randy: “Cool it, Unsk. Just because someone disagrees with you on policy doesn’t make them a liar.”

    Okay, Randy since 2001 we have been inundated with the claptrap meme that trade with China was greatly beneficial for America, by both the Bush and Obama Administrations, the Globalists of both parties and the US Chamber of Commerce. China never lived up whatsoever to the conditions of it’s initial entry approval into the WTO which was set up by the Clintons and the Bushes, and China manipulated those trade agreements and our foolish QE to build a massive industrial export economy built largely on stolen IP , technology transfers and predatory trade practices that wiped out about 30% of American manufacturing jobs during that time and enabled China to build a horrendously threatening military presence that threatens our very existence. 

    Did any of the bought and paid for Globalists, particularly those in government whose job was to protect America ever tell us during that time that China had reneged and was actually massively cheating on it’s agreements? The answer is a big flat out “NO”- they lied to us. It was their job to protect America and instead they ,including almost all of the so-called Establishment politicians of both parties, sold America out and covered up China’s wanton cheating. 

    But it gets worse.

    From the brilliant Richard Fernandez and his post ” Will Modern Khyperconnectivityt Allow China to Determine the Destiny of Civilization” at his Belmont Club blog:

    Robert Spalding, formerly “the chief China strategist for the chairman of the Joint Chiefs,” described what he thought was at stake in the U.S.-China “trade war” in which the role of Beijing’s telecom giant Huawei figures prominently. In an interview with American thought leaders, Spalding argued that it was bigger than a trade war. “It’s really about what kind of world we want to live in.” 

    “The study I did on 5G was technical, about physics and engineering. “

    “5G as proposed is made not for people but machines. … 4G can support 10,000 connections per square mile. 5G allows for 3 million. All that new capacity is not going to be filled by new people but machines, some of which, like self-driving cars, are big enough to run you over and bring danger. Even the cameras that today are connected to 4G are easily hackable and used in botnets and DDOS attacks. Imagine the threat scale of 3 million devices per square some of which could do harm to us.

    Europe lead in 2G, 3G, the US lead in 4G. … The underlying technology was built mostly on Western values. China figured if America could lead in 4G it should lead in 5G.”

    The Chinese have figured out that 5G – the medium that could control the interface of most technology that we have become so addicted to could control content and manipulate the “Overton Window’ of window thereby allowing the Chinese to dominate world public opinion. 

     

    • #7
    • June 12, 2019, at 11:36 AM PDT
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  8. Randy Weivoda Moderator

    So the people who disagree with you on trade policy are not just liars, but bought and paid for globalists. Right, because no one could have an honest difference of opinion with you, they must be paid to voice their lying opinions. I’m not going to try to persuade you that your opinion on trade is wrong @unsk, I’m just asking you to engage civilly. Having the “wrong” opinion doesn’t mean someone is a liar or paid off by nefarious forces.

    • #8
    • June 12, 2019, at 4:03 PM PDT
    • 1 like
  9. Unsk Member

    Did I name names Randy? No. I just said that the ones pushing the Free Trade agenda , particularly the politicians and the Chamber of Commerce, have not told the truth about what China Did.

    • #9
    • June 12, 2019, at 4:45 PM PDT
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  10. Midget Faded Rattlesnake Moderator

    @unsk, if someone on Ricochet asked, “When are you lying Trump supporters going to address” X, Y, or Z, should that count as CoC-compliant simply because the Trump supporters in question aren’t named specifically?

    And similarly for conspiratorial talk of who may be in the pay of whom.

    Treat others around here as you would like you and your side to be treated. 

    • #10
    • June 13, 2019, at 7:18 AM PDT
    • 3 likes
  11. Mark Camp Member

    Midget Faded Rattlesnake (View Comment):

    @unsk, if someone on Ricochet asked, “When are you lying Trump supporters going to address” X, Y, or Z, should that count as CoC-compliant simply because the Trump supporters in question aren’t named specifically?

    And similarly for conspiratorial talk of who may be in the pay of whom.

    Treat others around here as you would like you and your side to be treated. 

    I wasn’t going to say anything.

     Rather, I decided to just Flag and then ignore the problem and hope it goes away, either through a revived sense of social responsibility in the heart of the perpetrator, or an imposed expulsion from our friendly community in the worst case–something that leaves all of us smaller when it happens. Our colleague has had many valuable things to say in the past, and has many more to offer I’m sure, if he can discipline his passions just a little.

    I knew I wouldn’t be able to find words that would reveal the absurdity of this latest excuse to someone who apparently thought it very clever when he cooked it up.

    But you said it perfectly, thanks.

    • #11
    • June 13, 2019, at 8:55 AM PDT
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