Free-Trade Worriers
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 detrimental cure.
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 not.")
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 economy stronger.
Mr. Irwin, a professor of economics at Dartmouth, is the author of "Free Trade Under Fire" (Princeton, 2003).