Promising lede from Bloomberg:

Mexico and the U.S. are about to eliminate the last tariffs on goods they trade, prompting opposition by lawmakers and farmers in both countries who anticipate a flood of cheap imports.

In Mexico, farmers plan nationwide protests over what will be the final step in implementing the North American Free Trade Agreement on Jan. 1 and eliminating tariffs on American-grown beans and corn. The U.S. will drop tariffs on flip-flops, glassware and sugar, the most price-sensitive import.

“Back in 1993 when Nafta was negotiated, 15 years was a lifetime away,” said Daniel Erikson, a senior associate at the non-partisan Inter-American Dialogue in Washington. “But now this is really affecting the most sensitive products.”

Disappointing details:

Trade groups representing food makers and the Bush administration are among those who warn that unlimited sugar imports from Mexico could force the U.S. government to pay as much as $3 billion in loans over 10 years as prices fall.

Still, the imports could be checked given that Mexican prices for sugar have stayed above those in the U.S. for much of the last seven years.

“This is not just a threat to American sugar producers,” said Jack Roney, director of policy analysis with the Washington-based American Sugar Alliance. “There’s also an opportunity for us to actually export to Mexico.”

At the urging of Roney’s group, Congress adopted a measure opposed by Bush to force the U.S. to buy any surplus sugar and use it to make ethanol.

If the United States government is committed to providing expensive bailouts, then reducing tariffs and quotas isn’t much of an improvement.

Paul Krugman calls for a bit of respect:

I am arguing for an end to the finger-wagging, the accusation either of not understanding economics or of kowtowing to special interests that tends to be the editorial response to politicians who express skepticism about the benefits of free-trade agreements.

It’s often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That’s still true of things like the import quota on sugar. But when it comes to manufactured goods, it’s at least arguable that the reverse is true. The highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose.

As I said, I’m not a protectionist. For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect.

I rarely defend the New York Times, but it’s Christmas Day, so I’ll give them the gift of defending their editorial on trade and prosperity from some of Dani Rodrik’s criticisms.

In brief, the NYT writes:

It would be unfortunate for the United States if the winner of the 2008 election elevated skepticism toward trade from a red-meat sound bite on the campaign trail to a new wave of protectionist policy.

Many Americans are experiencing economic anxiety. Wages for most workers are going nowhere. It is a sad fact that despite enormous gains in productivity over the past few decades, the wages of typical workers are only marginally higher than they were a quarter of a century ago. But throttling trade — say, by reconsidering existing agreements — would hurt a lot more people than it helped. There is scant evidence that trade has played a big role in holding down typical workers’ wages. There is abundant evidence that it has contributed substantially to America’s overall economic growth…

Trade, like technological change, can produce wrenching dislocations that hurt some workers. But trade barriers are not the proper tool to deal with these changes.

Professor Rodrik is dissatisfied. He writes:

[They claim] “There is abundant evidence that it has contributed substantially to America’s overall economic growth,” ignoring what every student of trade learns, which is that large gains from trade are possible only of [sic] there are also large amounts of income redistribution.

If I understand him correctly, then this claim is too strong. While it may be true in the baseline Heckscher-Ohlin model that we frequently use to think about trade, it does not hold generally. Models with a single factor of production (Ricardo 1817, Krugman 1979, Melitz 2003) demonstrate sources of gains from trade (technological comparative advantage, economies of scale, productivity selection effects) that cannot depend on income redistribution, as there is only one factor. And Bernard, Redding & Schott’s modern version of the 2x2x2 model shows that improvements in aggregate productivity triggered by liberalization can cause the scarce factor’s real wage to rise. We need not confine ourselves to the results of one popular model.

Moreover, as Bhagwati & Srinivasan remind us (pdf),

But, even in that model, complete specialization will lead to the possibility that real wages improve even if the price of labour-intensive goods falls. This is a possibility that is in fact very real since many labour-intensive goods are no longer produced in the rich countries.

So the NYT‘s claim that globalization produces gains from trade without significantly depressing wages is more plausible than Professor Rodrik implies.

Rodrik also complains that the NYT‘s argument is wrong because

It automatically equates any desire to reconsider trade agreements and take a breather on new agreements as “protectionist.”

I think it’s fair to say that most voters attracted to Democratic promises of re-opening trade agreements to add minimum labor standards are interested in protection for labor’s wages in the United States, not a step towards a well-coordinated global regulatory framework. And opposition to the Doha round based on income distribution concerns, rather than the fear that liberalizing too fast will produce a backlash that undermines free trade, is protectionist — it identifies protection as desirable due to its income distribution effects. This is an economically valid argument, but the “protectionist” label is a dirty word because economists have spent centuries explaining that trade protection usually decreases aggregate income and is a crude redistributive mechanism — so crude that we are surprised by its use (Rodrik 1995). There is at least some merit to this very conventional message.

Of course, the other criticisms raised by Rodrik are largely valid, and his caveats are worth mentioning. But I find it a bit harsh to say the “NYT doesn’t get it on trade.”

Along these lines, Dean Baker is more sympathetic to the NYT, though he wishes that they’d attack protectionism in professional services and patents rather than unskilled manufacturing.

Finally, read this interesting and well-researched article in Macleans for insights into the feasibility of reopening old trade agreements and the gap between Hillary Clinton’s campaign rhetoric and policy proposals. It’s the best take on Democrats and trade I’ve read recently.

I rarely defend the New York Times, but it’s Christmas Day, so I’ll give them the gift of defending their editorial on trade and prosperity from some of Dani Rodrik’s criticisms.

In brief, the NYT writes:

It would be unfortunate for the United States if the winner of the 2008 election elevated skepticism toward trade from a red-meat sound bite on the campaign trail to a new wave of protectionist policy.

Many Americans are experiencing economic anxiety. Wages for most workers are going nowhere. It is a sad fact that despite enormous gains in productivity over the past few decades, the wages of typical workers are only marginally higher than they were a quarter of a century ago. But throttling trade — say, by reconsidering existing agreements — would hurt a lot more people than it helped. There is scant evidence that trade has played a big role in holding down typical workers’ wages. There is abundant evidence that it has contributed substantially to America’s overall economic growth…

Trade, like technological change, can produce wrenching dislocations that hurt some workers. But trade barriers are not the proper tool to deal with these changes.

Professor Rodrik is dissatisfied. He writes:

[They claim] “There is abundant evidence that it has contributed substantially to America’s overall economic growth,” ignoring what every student of trade learns, which is that large gains from trade are possible only of [sic] there are also large amounts of income redistribution.

If I understand him correctly, then this claim is too strong. While it may be true in the baseline Heckscher-Ohlin model that we frequently use to think about trade, it does not hold generally. Models with a single factor of production (Ricardo 1817, Krugman 1979, Melitz 2003) demonstrate sources of gains from trade (technological comparative advantage, economies of scale, productivity selection effects) that cannot depend on income redistribution, as there is only one factor. And Bernard, Redding & Schott’s modern version of the 2x2x2 model shows that improvements in aggregate productivity triggered by liberalization can cause the scarce factor’s real wage to rise. We need not confine ourselves to the results of one popular model.

Moreover, as Bhagwati & Srinivasan remind us (pdf),

But, even in that model, complete specialization will lead to the possibility that real wages improve even if the price of labour-intensive goods falls. This is a possibility that is in fact very real since many labour-intensive goods are no longer produced in the rich countries.

So the NYT‘s claim that globalization produces gains from trade without significantly depressing wages is more plausible than Professor Rodrik implies.

Rodrik also complains that the NYT‘s argument is wrong because

It automatically equates any desire to reconsider trade agreements and take a breather on new agreements as “protectionist.”

I think it’s fair to say that most voters attracted to Democratic promises of re-opening trade agreements to add minimum labor standards are interested in protection for labor’s wages in the United States, not a step towards a well-coordinated global regulatory framework. And opposition to the Doha round based on income distribution concerns, rather than the fear that liberalizing too fast will produce a backlash that undermines free trade, is protectionist — it identifies protection as desirable due to its income distribution effects. This is an economically valid argument, but the “protectionist” label is a dirty word because economists have spent centuries explaining that trade protection usually decreases aggregate income and is a crude redistributive mechanism — so crude that we are surprised by its use (Rodrik 1995). There is at least some merit to this very conventional message.

Of course, the other criticisms raised by Rodrik are largely valid, and his caveats are worth mentioning. But I find it a bit harsh to say the “NYT doesn’t get it on trade.”

Along these lines, Dean Baker is more sympathetic to the NYT, though he wishes that they’d attack protectionism in professional services and patents rather than unskilled manufacturing.

Finally, read this interesting and well-researched article in Macleans for insights into the feasibility of reopening old trade agreements and the gap between Hillary Clinton’s campaign rhetoric and policy proposals. It’s the best take on Democrats and trade I’ve read recently.

I rarely defend the New York Times, but it’s Christmas Day, so I’ll give them the gift of defending their editorial on trade and prosperity from some of Dani Rodrik’s criticisms.

In brief, the NYT writes:

It would be unfortunate for the United States if the winner of the 2008 election elevated skepticism toward trade from a red-meat sound bite on the campaign trail to a new wave of protectionist policy.

Many Americans are experiencing economic anxiety. Wages for most workers are going nowhere. It is a sad fact that despite enormous gains in productivity over the past few decades, the wages of typical workers are only marginally higher than they were a quarter of a century ago. But throttling trade — say, by reconsidering existing agreements — would hurt a lot more people than it helped. There is scant evidence that trade has played a big role in holding down typical workers’ wages. There is abundant evidence that it has contributed substantially to America’s overall economic growth…

Trade, like technological change, can produce wrenching dislocations that hurt some workers. But trade barriers are not the proper tool to deal with these changes.

Professor Rodrik is dissatisfied. He writes:

[They claim] “There is abundant evidence that it has contributed substantially to America’s overall economic growth,” ignoring what every student of trade learns, which is that large gains from trade are possible only of [sic] there are also large amounts of income redistribution.

If I understand him correctly, then this claim is too strong. While it may be true in the baseline Heckscher-Ohlin model that we frequently use to think about trade, it does not hold generally. Models with a single factor of production (Ricardo 1817, Krugman 1979, Melitz 2003) demonstrate sources of gains from trade (technological comparative advantage, economies of scale, productivity selection effects) that cannot depend on income redistribution, as there is only one factor. And Bernard, Redding & Schott’s modern version of the 2x2x2 model shows that improvements in aggregate productivity triggered by liberalization can cause the scarce factor’s real wage to rise. We need not confine ourselves to the results of one popular model.

Moreover, as Bhagwati & Srinivasan remind us (pdf),

But, even in that model, complete specialization will lead to the possibility that real wages improve even if the price of labour-intensive goods falls. This is a possibility that is in fact very real since many labour-intensive goods are no longer produced in the rich countries.

So the NYT‘s claim that globalization produces gains from trade without significantly depressing wages is more plausible than Professor Rodrik implies.

Rodrik also complains that the NYT‘s argument is wrong because

It automatically equates any desire to reconsider trade agreements and take a breather on new agreements as “protectionist.”

I think it’s fair to say that most voters attracted to Democratic promises of re-opening trade agreements to add minimum labor standards are interested in protection for labor’s wages in the United States, not a step towards a well-coordinated global regulatory framework. And opposition to the Doha round based on income distribution concerns, rather than the fear that liberalizing too fast will produce a backlash that undermines free trade, is protectionist — it identifies protection as desirable due to its income distribution effects. This is an economically valid argument, but the “protectionist” label is a dirty word because economists have spent centuries explaining that trade protection usually decreases aggregate income and is a crude redistributive mechanism — so crude that we are surprised by its use (Rodrik 1995). There is at least some merit to this very conventional message.

Of course, the other criticisms raised by Rodrik are largely valid, and his caveats are worth mentioning. But I find it a bit harsh to say the “NYT doesn’t get it on trade.”

Along these lines, Dean Baker is more sympathetic to the NYT, though he wishes that they’d attack protectionism in professional services and patents rather than unskilled manufacturing.

Finally, read this interesting and well-researched article in Macleans for insights into the feasibility of reopening old trade agreements and the gap between Hillary Clinton’s campaign rhetoric and policy proposals. It’s the best take on Democrats and trade I’ve read recently.