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.

Back in April, I expressed skepticism at the US Commerce Department’s imposition of countervailing duties on Chinese glossy paper exports, partly because there wasn’t much evidence of material harm to domestic industry. Tuesday, the USITC voted 5-1 that US industry was not materially injured by low-priced glossy paper from China, South Korea and Indonesia.

The USITC ruling does not overturn the Commerce decision that China is a market economy and therefore subject to possible CVDs. Plenty of anti-subsidy investigations are already underway.

Trade is not combat, and military metaphors rarely aid economic understanding. It’s therefore frustrating to see Peter Mandelson, the EU’s trade commissioner, argue for greater use of “trade defense instruments” against the “Chinese juggernaut.”

A 2003 paper (pdf) from Dean Baker:

“Free trade” has generally been used to refer to the removal of trade barriers that protect less-skilled workers… The term has rarely been used in the context of efforts to extend protectionist barriers that benefit powerful industries… A consistent proponent of “free trade” would be opposed to all these barriers to the free exchange of goods and services…

While both Democratic and Republican administrations have actively sought to lower some types of trade barriers, most notably on manufactured goods, U.S. trade negotiators have done little or nothing to lower other barriers… highly paid professionals continue to work in a well-protected labor market. This protection is one reason that wage growth for these professionals has consistently outpaced the rate of wage growth of most other workers in the United States over the last two decades…

Skilled labor is in fact a produced input… In the same way that developing countries can often produce steel or apparel at a lower cost than in the United States,developing countries will often be able to educate doctors, dentists, lawyers, or accountants — to U.S. standards – at a far lower cost than in the United States…

U.S. trade policy toward highly paid professional services has largely gone in the opposite direction in recent years, increasing barriers to foreign professionals… a new test – which only applied to foreign trained doctors — was put in place as part of the licensing requirements for foreign physicians. As a result of these restrictions, the inflow of foreign residents was cut almost in half…

[S]ince 1976, the Federal government has had a policy of refusing to hire foreign citizens, unless no qualified citizen can be found for a position. The analogous policy for goods would be a federal buying policy that required the government to purchase only U.S. made products, unless there were no domestic producers of a specific item. Such a policy would be a blatant violation of NAFTA, the WTO, and numerous other trade pacts….

The potential economic impact of freer trade in professional services is at least an order of magnitude higher than most of the items that currently dominate the trade agenda… [R]emoving barriers for four categories of highly paid professionals –doctors, dentists, lawyers, and accountants… [would produce] annual gains to consumers [that] could be between $160 billion and $270 billion, or between $2,200 and $3,700 a year for an average family of four.

Reuters:

Passed by a vote of 20-1, the Senate Finance Committee’s measure would allow U.S. companies to seek anti-dumping duties on goods from any country that maintains a “fundamentally misaligned” exchange rate after being formally cited by the United States.

Via Mankiw.

Since I’ve covered Korean cultural protectionism before, I should mention this great FT piece on the subject by Columbia’s Eli Noam:

American media firms will not gain very much from the FTA with Korea (and Korean firms and culture will not lose much) that is (a) significant in practical terms, or (b) not happening anyway as part of broader trends. Whatever problems these trends create for Korean media can likely to be dealt with through direct support programs. This modest impact is not because the FTA is flawed. But media products and services are much less governed by FTA-style agreements which are economic tools for the industrial and agricultural economy, much less for the information economy.

Read the full piece to find out why.

India has announced that it will reduce its 550% tariff on Scottish whisky. The impetus? An Indian tycoon just bought Whyte & Mackay, one of the world’s largest Scotch whisky producers.

Alex Singleton criticizes the soon-to-be-gone tariffs:

Scotch producers are delighted, believing that they could see exports to India increase by a factor of four. Needless to say, this is exactly the opposite of what development campaigners would like to see. After all, whisky is an infant industry for India, and therefore needs “targeted protection”.

Back in the real world, targeted isolationism has had a dismal record over the past fifty years. Such isolationism breeds uncompetitive companies that fail to turn into profitable industries. It is much better for industries to be created that can actually compete in the here and now: they are the ones that really will grow into global players. Whisky is likely to be one such industry for India. Perhaps I haven’t been looking but I haven’t noticed Indian whisky on the supermarket shelves yet. I’m sure we’ll be seeing a lot more of it in the future.

Not so fast. You don’t see Indian whisky in the UK, but the problem isn’t Indian:

The term “western-style spirits” refers to products made in accordance with
internationally accepted industry standards (e.g., EU, WTO etc), which specify raw materials, aging,
level of alcohol by volume (abv), etc. Much of the whisky produced in India, for example, does not
qualify as “whisky” under the EU industry standards. The EU definition specifies that whisky has to
be made from cereals, at least 40% abv and aged for three years or more, whereas Indian whisky is
derived from molasses. [International Center for Alcohol Policies pdf]

I very much doubt that protectionism has hurt the development of the Indian whisky industry, considering the massive domestic market – Indians drink 570 million litres per year, making them by far the largest consumers of whisky.

While the Indian protectionism certainly deserved criticism – poor Kunal Doshi can only afford Scotch when drinking on his parents’ tab – the more relevant question now is whether the EU’s technical barrier to trade is reasonable consumer protection or unjustified nativism.

Echoing his February piece in The Nation, James K. Galbraith writes in The American Prospect:

Senators Byron Dorgan and Sherrod Brown articulated a trade policy that typifies the consensus view of the party’s labor-liberal wing. They criticize “free trade,” call for strong labor and environmental standards in future trade agreements, and argue for aggressive policies to open foreign markets to American goods. Their critique reflects a genuine anger, and the concerns their piece embodies deserve to be met. Their program is populist, nationalist, muscular, and in tune with the mood of the Democratic base.

But it is not reality-based.

Galbraith would like progressives to ditch the narrative that America needs to block manufactured imports (either through standards or tariffs) in order to protect jobs. Why?

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