Sunday, December 29, 2019

Protectionism and the election

Democrats need to campaign inter alia on a full-throated condemnation of Trump's protectionism. Over and over again, they need to point out that Trump has raised taxes on ordinary people with his tariffs -- we need to get an estimate of the net effect of the tax "cuts" less tariff-induced price increases and run with it. I have to say that years and years of  "progressives' " apologia for protectionism -- the nonsense about the jobs destroyed by NAFTA (when jobs created are ignored!) is a case in point--has contributed to the current muteness of the Democrats on these issues.

Surely a full-throated anti-protectionist message could capture votes in rural America. And a non-negligible part of the pervasive corruption of this administration centers on the quid pro quos, explicit or implicit, that are involved in granting exemptions from tariffs --this needs to be investigated to a much greater extent.

17 comments:

2slugbaits said...

Sorry, but I cannot agree...and I'm a free trader!!! Before economists try to convince voters and politicians of the benefits of free trade, economists need to first be honest with themselves. To begin with, there is nothing in the standard free trade arguments that say freer trade results in more jobs. Free trade only says that it will increase the welfare triangle and that the benefits of free trade outweigh the costs. In principle winners should be able to fully compensate the losers leaving everyone at least as well of as before. And there's the rub. Winners are not inclined to surrender any of their gains from free trade, so the losers can be forgiven if they find free trade arguments underwhelming. The losers from free trade also believe (with some justification) that the winners of free trade tend to come from the coastal regions of the country; i.e., from blue states. When it comes to free trade, if Democrats want to be taken seriously, then they need to start arguing against the interests of free trade winners.

But the losers from free trade don't just want a handout to compensate them for lost jobs; they also want to retain the dignity of meaningful work. For younger workers that could be accomplished with very aggressive programs to retrain or re-educate workers along with significant mobility assistance and a strong safety net that would allow them to leave their local networks of safety nets. There are such programs today, but they are miniscule and would have to be ramped up by at least two orders of magnitude. For older workers the government would have to temporarily subsidize inefficient industries to allow those workers to retire with some sense of dignity. In other words, Democrats need to start taking seriously the concerns and anxieties of the "left behind" that make up so much of Trump's base. What they don't need is a lecture from economists.

I am not staking out a new or radical position. This is basically the same argument that Jadish Bhagwati made 15 years ago in his book In Defense of Globalization and more recently by 2019 Nobel laureates Abhijit Banerjee & Esther Duflo in their new book Good Economics for Hard Times.

Anonymous said...

"Democrats need to campaign inter alia on a full-throated condemnation of Trump's protectionism...."

Democrats are by and large supporting Trump on protectionism or ever going beyond in speeches.

Anonymous said...

ever should be even...

Democrats are by and large supporting Trump on protectionism or even going beyond in speeches. I cannot imagine a campaign being remotely successful run on moving toward actually free trade when there is so much sentiment against just that. Democrats will not tough the issue.

Anonymous said...

tough should be touch; sorry that I am being careless in typing.

kevin quinn said...

2slugbaits:

Yes I agree that freer trade doesn't add jobs, but the Sanders/Warren/Trump camp claims that it subtracts jobs. On balance, it's a wash, but with a more efficient mix. I also agree that we need to couple the advocacy of freer trade (than under Trump) with serious and strong provisions for retraining funded by the winners.


Anonymous: yes, they won't touch the issue, but I think this is a mistake. The political benefits of pointing to the Trump tax increases are potentially very big-

2slugbaits said...

Kevin Quinn,

I agree that Sanders/Warren/Trump do not understand the usual free trade arguments; however, in a perverse sense they are right about free trade subtracting jobs, but they are right for all of the wrong reasons. The Sanders/Warren/Trump universe is zero sum and cheap foreign labor always comes at the expense of more costly American labor. Where I blame the standard free trade models is that they overstate the elasticity of labor. In the short to medium term labor supply tends to be very inelastic and is highly immobile, but in the free trade model labor is highly elastic and mobile. And it's this inelasticity and immobility that sinks people into chronic unemployment. And having a job isn't just a source of income in which people are indifferent about their occupations. Having a job is part of one's identity, even if it's a crappy job. I can remember when coal miners were about as anti-capitalist as they come. The coal miners union and coal companies were always at each other's throats, but today they are in lock step. Economists need to ask themselves why that's the case.

Peter Dorman said...

Kevin, sorry to disagree, but the standard trade models all *assume* the trade balance remains unchanged, so only composition is at stake. Fancier treatments (e.g. Obstfeld and Krugman) have current account balances determined separately by national savings and investment functions that don't depend on trade balances, so it comes out the same. But we live in a general equilibrium world (minus the equilibrium part!) in which everything affects everything else: trade balances affect net national savings and net national savings affect trade. When China was admitted to the WTO there was a shock to the US trade account which impacted labor markets across America and further altered household savings. This holds even after adjustment lags.

None of this means that liberalizing trade with China was good, bad or otherwise in itself -- that's a separate discussion. (I think: mostly bad but with some good.) The only point to make here is that the claim that trade theory algebra "proves" liberalized trade is neutral with respect to total employment and beneficial on efficiency grounds is false.

I think I've railed on this point in previous EconoSpeak posts.

rosserjb@jmu.edu said...

The models for nations with substantial and serious labor support and retraining programs tend to be small very open economies where exports are like half of GDP or thereabouts so that there is simply huge support for keeping trade functioning properly. Thus we see usual suspects like Sweden and Denmark having spent at times as high as 2 percent of GDP on such programs, and they have been pretty successful in those nations.

Unfortunately in the US trade is simply a much smaller part of the economy so there is simply far less support for such programs to bee sufficiently large to be effective.

I am frustrated that the Dems are not saying more on this and probably will not say more, given their complicated histories with it. But it is not so easy, especiallly given their history. However, Kevin is probably right that one way it can be gotten at is through emphasizing the tax side of it.

rosserjb@jmu.edu said...

BTW, again I am seeing a bunch of ads in our margins. I have not approved of these and do not know who is allowing them or why. Are we or somebody getting any money for any of this? I certainly am not seeing any of it, nor am I aware of it being used to somehow assist things going on here.

Dan Crawford from Angry Bear said they allow ads to help fund the site. OK, maybe, but at least they seem to have had some discussion about it. I shall, however, say that as far as I am concerned they have too many. They are constantly popping up in one's face when one tries to comment, very annoying. We have fewer and they are not in the way all that much, but why so we have any at all?

Not my doing and being done against my wished, for the record. Whoever is responsible for this, either defend it (privately would be OK), or STOP IT NOW!

Anonymous said...

"I also agree that we need to couple the advocacy of freer trade (than under Trump) with serious and strong provisions for retraining funded by the winners.


"Anonymous: yes, they won't touch the issue, but I think this is a mistake. The political benefits of pointing to the Trump tax increases are potentially very big-"

This is completely reasonable.

Anonymous said...

I am sorry about the ads.

Anonymous said...

A question that confuses me, why is China taking the lead in globalization and freer trade if either is considered to be limiting for an economy?

marcel proust said...

Blanchard and Willman have at least 2 interesting analyses of the political impacts of free trade, based on fairly highbrow but otherwise unremarkable economic models which they manipulate in imaginative and insightful ways (this and that).

Kaleberg said...

This argument ignores most people's experience with free trade. A lot of people remember or have heard tales or seen evidence of when their city or town was a manufacturing center with good union jobs or jobs with decent pay and benefits thanks to the union umbrella. They now see only crappy just above minimum wage jobs, empty factory buildings and a marginal local economy. They may see some evidence of the benefits of free trade. Perhaps their town now exports chicken feet to China, but those jobs are low pay, low benefit and often filled by illegal immigrants who are much more tractable sub-minimum wage employees. Attempts to improve working conditions are summarily dismissed with a threat to move production overseas.

Yes, there is an economic theory that free trade increases overall efficiency, but anyone who has had their machine crash without the inefficiency of an entire disk or flash drive wasted on a backup copy knows that efficiency can have its price. There are also economic theories, theories that have repeatedly proved their effectiveness and applicability, that show that free trade can leave a nation in poverty even as it produces wealth elsewhere. In the 19th century, those theories enabled the industrialization in Europe and the US, and in the 20th century, they enabled the industrialization of Japan, Korea, Taiwan and China. Free trade, supported by the British in the 19th and the US in the 20th century is just an imperialistic argument to justify imperial behavior. The argument is based on the false claim that efficiency is a desirable end in and above itself and at any cost.

Jerry Brown said...

Kevin, I think you are right if your goal is to have Donald Trump win again. But as a Democrat for more than 30 years who wants a Democratic President who will represent the working class at least as much as the upper class, I think you are out to lunch if you also are supporting a Democrat to win. You are wrong on the politics and you are wrong on how supposedly 'free' trade affects labor.

Anonymous said...

"Kevin, I think you are right if your goal is to have Donald Trump win again...."

Tough, but I reluctantly agree. The sense that workers are being harmed by freer trade is now taken for granted and even if wrong going against that sense would be difficult in the near term.

kevin quinn said...

Why would it help Trump get re-elected to point out the truth: that his protectionism has done nothing but harm? It hasn't increased manufacturing employment; it has raised prices for imports; it has planted a dagger in the heart of the rural economy. It is also unconstitutional on its face - there is no national security concern that is addressed by imposing tariffs on our allies. And it is a potent source for corruption in handing out tariff exemptions.