Economists are tired of trade bashing

Here comes the (academic) backlash! Lawrence MacDonald tires of the pandering in Ohio:

It was perhaps inevitable but it is nonetheless disappointing to see the Democratic candidates for president engaged in such energetic trade bashing… Of course the stakes are high in Ohio and Texas (and even in Rhode Island and Vermont, which also vote on March 4). But it is precisely when the stakes are high that we would hope that candidates for president show their mettle. Obama in particular tells voters he prefers truth-telling – pointing out to Detroit automakers the dire need for higher auto-fuel economy standards, for instance. It’s too bad that he and Senator Clinton aren’t giving us similarly plain talk on the challenges of globalization, and what should and shouldn’t be done about it. In recent years global trade has helped to lift 100 million Chinese from poverty—the greatest reduction in poverty in the history of the world—and through cheap imports helped to hold down inflation, too. Would America be better-off if this had not happened?

Over at Vox, Willem Buiter and Anne Sibert dissect Obama’s Patriot Employer Act:

If the Patriot Employer Act proposal is anything to go by, we are in trouble if Obama wins. The legislation would provide a tax credit equal to one percent of taxable income to employers who fulfill the following conditions:

· First, employers must not decrease their ratio of full-time workers in the United States to full-time workers outside the United States and they must maintain corporate headquarters in the United States if the company has ever been headquartered there.

· Second, they must pay a minimum hourly wage sufficient to keep a family of three out of poverty: at least $7.80 per hour.

· Third, they must provide a defined benefit retirement plan or a defined contribution retirement plan that fully matches at least five percent of each worker’s contribution.

· Fourth, they must pay at least sixty percent of each worker’s health care premiums.

· Fifth, they must pay the difference between a worker’s regular salary and military salary and continue the health insurance for all National Guard and Reserve employees who are called for active duty.

· Sixth, they must maintain neutrality in employee organising campaigns.

Only the last of these conditions does not raise serious issues…

Companies ought to decide the location of their headquarters and their domestic and foreign employment levels without being subjected to fiscal incentives. It is also unenforceable. Foreign branches of domestic companies, whose workers count as employees of the parent, would be changed to subsidiaries, whose workers no longer count as employees of the parent. Companies ever headquartered in the United States would be sold to shell companies or shut down and immediately reopened with a different name and legal identity, headquartered abroad. Let Commerce Department lawyers try to use corporate DNA fingerprinting to determine the ancestry of these new corporations! Unfortunately, idiotic legislation that is unenforceable is not harmless – it breeds contempt for laws and institutions…

The Patriot Employer Act seeks to transfer wealth from the truly downtrodden of the world to a limited number of favoured US workers: mainly those in once dominant manufacturing industries that have lost their global competitive edge. It is breathtaking hypocrisy to object to the often appalling conditions of work and employment in developing countries and emerging markets, including sweatshops and child labour, while at the same time trying to prevent the operation of the normal and effective mechanisms for remedying these deplorable circumstances: foreign direct investment, outsourcing, off-shoring and all other manifestations of free trade.

Sen. Barack Obama’s proposal is reactionary, populist, xenophobic and just plain silly. It is time for him to stop pandering and to show the world that hope and reason are not mutually exclusive. Instead of increased protectionism, the United States might increase its competitiveness by sensible investments in infrastructure and education.

Somehow I doubt these objections will alter the candidates’ campaign strategies.

Update: The Economist blog defends Obama: “This bill is much less bad than it could be, primarily because the restrictions it contains are optional… There is a case to be made that Mr Obama is the most economist-friendly candidate out there… This bill is bad, but it’s not dangerous. It’s far less offensive than many of the anti-trade, anti-immigration proposals seen elsewhere in the campaign.”

2 thoughts on “Economists are tired of trade bashing

  1. The Custom-House

    “The dangerous protectionism of Barack Obama”

    Willem Buiter and Anne Sibert explain the problems with the Brown-Obama-Durbin Patriot Employers Act: The dangerous protectionism of Barack Obama (Vox, Feb 26). H/T to Trade Diversion.

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