By DOUGLAS A. IRWIN
August 9, 2004; Page A12
If there is one truth about the public debate over trade policy, it is
that free trade is always under fire. Indeed, the ongoing spate of
trade angst has been hard to avoid. In a widely noted piece, Sen.
Charles Schumer and supply-side economist Paul Craig Roberts joined
forces to pen "Second Thoughts on Free Trade" in the New York Times
earlier this year. CNN's Lou Dobbs has been beating the drum against
corporations that send jobs overseas for months now. And in the Aug. 3
issue of The New Yorker, John Cassidy raises the question: "Is Free
Trade Really a Good Thing?"
The context for these anxieties is sluggish employment growth as the
economy recovers from the recession, coupled with concerns about the
quality of those jobs. Although employment has been growing erratically
since last September, job creation was very weak in July, with just
32,000 new jobs added, according to figures released on Friday. Those
blasting free trade blame it for the disappointing labor market and
hold it responsible for the decline of manufacturing and the
outsourcing of white collar jobs to India.
But recent free trade critics are content to beat up on the idea of
free trade and stop there, seemingly afraid to go the next step and
embrace protectionism. Messrs. Schumer and Roberts state that
"old-fashioned protectionist measures are not the answer," and Mr.
Cassidy concedes that "economists are right when they say that
protectionism isn't the answer to outsourcing." At least long-standing
opponents of free trade, such as Robert Kuttner of the (liberal)
American Prospect and Patrick Buchanan of the (conservative) American
Conservative, have the courage of their convictions in proposing
managed trade arrangements or higher import tariffs.
So why are the recent critics so hostile to free trade while ruling out
protectionist solutions? To hide the fact that they have no solutions
to offer. The poverty of free-trade critics is that they fail to bring
anything constructive to the table.
The free trade critics leave the impression that trade is responsible
for our domestic ills. But they do not propose trade-based solutions
because one suspects that even they recognize that trade is not really
the problem. In 2003, according to the Bureau of Labor Statistics, only
3% of the 1.2 million workers displaced as a result of extended mass
layoffs was due to import competition (2%) or overseas relocation (1%).
In the first quarter of 2004, according to a new BLS survey on
outsourcing, just 2.5% of mass layoffs were related to the movement of
work to another country.
The focus on trade as a reason for the disappointing labor market
doesn't simply distort the facts, it is an incorrect diagnosis of the
problem that leads policymakers to consider ill-advised solutions. If
the jobs problem is attributed to trade, erroneously, then the
apparently obvious solution involves closing markets, which in the long
run will harm the U.S. economy. A misdiagnosis can lead to a
This is the danger that John Kerry faces in making trade an issue in
the campaign. At the Democratic convention, Sen. Kerry spoke of "new
incentives to revitalize manufacturing" but was not specific. No one is
against removing impediments that inhibit the manufacturing sector, but
many groups in his constituency would like to see assistance that
involves trade restrictions or explicit government support.
Any such proposals should trigger alarm bells because trade is not the
problem for manufacturing. Like agriculture in past decades, the
long-run decline in the share of employment in manufacturing is due
almost entirely to productivity improvements, not import competition.
Yet when the agricultural sector started shedding jobs due to its
productivity success, the government's "solution" to this "problem" now
saddles taxpayers and consumers with the burden of providing nearly $40
billion in support to U.S. farmers, about 20% of gross farm income last
year, according to the OECD.
Many of the free-trade critics raise legitimate and important issues
about wages and job creation in the United States. One would think the
debate would focus on strengthening the economy or empowering workers
in a difficult labor market. Workers can be empowered by allowing them
to have portable retirement accounts rather than pensions tied to a
particular employer. The portability of health-care benefits should be
examined, as well as the design and incentive structure of current
unemployment insurance programs. The tax-related costs that fall on
companies that hire U.S. workers should be reassessed.
Unfortunately, many of the free trade critics seem more intent on
bashing the idea of free trade than on coming up with constructive
solutions to the problems they identify. Rather than do some hard
thinking about labor-market policies, the critics try to put forth
reasons why free trade doesn't work in today's world because this or
that condition does or does not hold anymore. (Though technology has
made services now much more tradable than in the past, this does not
compromise the case for free trade, as is sometimes suggested.)
When these ruminations flop, as they usually do, the free-trade critics
grope to find some intellectual respectability for their arguments
elsewhere. Some have latched onto the book "Global Trade and
Conflicting National Interests," by New York University economist
William Baumol and Sloan Foundation president Ralph Gomory. But
appealing to this theoretical work is very strange indeed. Messrs.
Baumol and Gomory suggest that the United States has potential
conflicts of interest in trading with France and Britain, and no such
conflict -- trade is win-win -- with regard to India and China. This is
exactly the opposite of what the trade-worriers want to hear. (And Mr.
Baumol, apparently worried about the uses to which his work would be
put, explicitly warns that "there is some danger that this book will be
misunderstood as a protectionist argument, which it emphatically is
This just shows how hostility to free trade has distorted what should
have been a debate about strengthening the economy and improving
opportunities for workers. The hostility toward free trade is not only
misplaced, but prevents critics from coming up with positive ideas
about how to improve economic performance.
As it stands now, free trade-critics bring nothing to the table. They
do not have a constructive agenda to remedy the problems they see.
Free-trade critics are long on complaints and short on solutions.
Instead of carping about free trade, they should direct their energies
toward coming up with concrete suggestions about how to make the
Mr. Irwin, a professor of economics at Dartmouth, is the author of
"Free Trade Under Fire" (Princeton, 2003).