The nation's integration into the global economy began to accelerate in the mid-1990s, as barriers to trade and capital flows fell around the world. The transformation has opened markets for U.S. exporters and given consumers access to low-cost goods made abroad. But the changes have come with a cost, as tens of thousands of American manufacturing jobs have been shipped overseas, and 58% of those polled said the tradeoffs haven't been worth it. Only 28% said globalization has been a good thing.Last week, Joanne & I discussed what issues would be the most important to us in the election. My feeling is that an issue like free trade is very important because it is very open to presidential influence, whereas something like abortion isn't really (save the nomination of judges). And it concerns me that support for free trade is at 28% and candidates are shaping their international trade positions around that. To me, it is a clear cut that free trade is good, fewer economic barriers are good and so on. I haven't decided if my feeling on this is strong enough to be a litmus test, but I it will be an issue in which I carefully review a candidate's rhetoric, since I think it can also speak to the approach a politician will take to issues in terms of pandering versus principles.
Thursday, December 20, 2007
Free trade
Today's WSJ mentions a poll about rising anti-global sentiment in the US. Not just immigration, but economic sentiment as well, which is more my interest:
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So, I've been curious about this subject for a while, but not enough to really research it. So, can you recommend reading on the pros and cons provided in the free trade/protectionism debate?
In general, I support it, because I'm an unabashed capitalist, but I'd be interested in reading peer reviewed economic analysis, if it's possible to get my hands on it without having to resort to ordering the Annual Annals of Economic Weekly or some other equally esoteric subscription I wouldn't read on an ongoing basis.
The problem with looking data on free trade is that it really doesn't exist. Some trade is arguably free-er than other trade, but with the number of tariffs, subsidies, and government guarantees bolstering so many parts of our economy, infomration on a truly free market is hard to come by.
Most people, even here in the supposedly market-oriented USofA, don't even support free markets, although most of us like to think we do. But that requires the free flow of goods, services, capital, and labor across international boundaries, and precious few folks actually think that is a good idea.
So, then people have this opinion based on:
1) Ignorance
2) Mathematical modeling
3) Supposition
I guess I find it hard to believe that people have not conducted fairly exhaustive studies or at least theories for both side. Then again, maybe not. Never under estimate stupidity.
Every economist that I come across (limited to Steven Levitt, Tyler Cowan and occasionally Gregory Mankiw) state that for economists, free trade is a settled issue. Ken brings up the point that real trade doesn't exist, which is true. Wikipedia covers the basics of the debate.
A couple of reading pieces (if you don't mind long pdfs):
A Skeptics view of Free Trade Studies (2000)
A Reply to a skeptics view (2000)
I can also forward a copy of "Why did the Tariff-Growth Correlation Change after 1950? " if you're interested.
To me, protectionism is the easy argument, because the anecdotes are more powerful--outsourcing, foreign work conditions, corporate greed, etc--whereas the benefits of trade (cheaper more plentiful goods, higher productivity, etc) don't seem to resonate as much.
ONe of the big points in protectionism vs free trade is the role of the manufacturing sector. People struggle to wrap their head around a country being successful if doesn't produce anything, because that seems like where the value add should be. But as the growth of Chinese manufacturing shows, that's just one piece of the pie, and growing smaller as it requires less skill.
A bad analogy I'll attempt to make is with Arizona's technology sector. By most accounts, AZ has a fairly strong tech sector--did you know the state ranks 6th in technology related exports? THat's highly reliant on the still large semiconductor manufacturing sector, as well as the size of Honeywell. But all that tech is manufacturing. It actually doesn't translate to homegrown innovation with drives wealth. All that derived wealth accrues in Santa Clara, Austin, Shaumberg (not so much anymore) or New Jersey. Arizona is/was essentially an outsourcing location. Did that adversely affect the rest of the US? How much did Arizona benefit. (I like when i write before my thesis--I'm not sure what my point is anymore).
If you want more commentary, search "free trade" at marginalrevolution.com. There are some interesting conversations there, as well as links to more formal arguments.
Keith, Assuming government is always going to exist, and assuming that different governments will emphasize different values, thus different regulations, I struggle with the safety of the products crossing the borders. While over the long term (20 years? 100 years?), China for example will respond to the consumers in other countries, in the meantime, public safety is severely compromised. I cannot tell you how many supply chain incidents we have seen at P&G from tainted raw materials out of China. We end up needing stronger testing and regulation on our borders to achieve our values. Pretty costly to the public, but the private companies make the money. Your thoughts?
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