Posts Tagged ‘TPP’

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Posted: 20 December 2019 in Uncategorized
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Now that President Trump has begun carrying out his campaign pledges to undo America’s trade ties, formally withdrawing the United States from the Trans-Pacific Partnership and announcing he will start to renegotiate the North American Free Trade Agreement, it’s time to analyze what this means.

As it turns out, I’d already started to do this before the election, with a series of posts (e.g., here, here, here, and here) on Trump and the mounting criticism of the trade agreements the United States had signed (such as NAFTA) or was in the process of negotiating (the TPP).

It’s clear Trump’s decisions—which he claims are a “Great thing for the American worker”—challenge the view of economic and political elites, as well as those of mainstream economists (such as Brad DeLong), in the United States and around the world that everyone benefits from free trade.*

But, we now know, there has also been a growing counter-narrative, that not everyone has gained from growing international trade and trade agreements, which have generated  unequal benefits and costs. What’s interesting about this alternative story, at least when it comes to NAFTA, is that critics on each side argue the other side is the one that has benefited: U.S. critics that Mexico has gained, and just the opposite in Mexico, that the United States has captured the lion’s share of the benefits from NAFTA.

Here’s the problem: workers on both sides of the border have lost out, and their losses are mostly not due to NAFTA.


We know, for example, that the wage share of national income in the United States has in fact declined after NAFTA was implemented (in January 1994)—from 45.1 percent of gross domestic income to 42.9 percent. But we also have to recognize workers have been losing out since at least 1970, when the wage share stood at 51.5 percent.


Much the same has been happening in Mexico, where (according to the research of Norma Samaniego Breach [pdf]), the wage share (the dark green line in the chart above) has been falling since 1978—and continued to fall after NAFTA was put into place. And, as Alice Krozera, Juan Carlos Moreno Brid, and Juan Cristóbal Rubio Badan have shown, economic and political elites in Mexico, much like their U.S. counterparts, have mostly ignored the problem of inequality and resisted efforts to raise the minimum wage and workers’ share of national income.

The fact is, while NAFTA did propel a large increase in trade between Mexico and the United States, it “did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters” (according to a 2015 study commissioned by the Congressional Research Service [pdf]).

The bottom line is, eliminating or renegotiating NAFTA—including in the manner Trump is proposing—is not going to help the working-classes in either Mexico or the United States. It is merely a diversion from the real changes that need to be made, to which the political and economic elites as well as mainstream economists in both countries stand opposed.


*The only real debate within mainstream economics is between neoclassical economists who argue free trade generates the most efficient outcomes, within and between countries (regardless of whether countries run trade surpluses or deficits), and their critics (such as Jared Bernstein) who argue that trade deficits lead to a loss of jobs (e.g., in U.S. manufacturing), and thus require interventions of the sort Trump is proposing to change the pattern of international trade.


Late last month, I argued Donald Trump doesn’t know what he’s talking about when it comes to international trade. But his attacks on free trade are in fact resonating among working-class voters. That, and the fact that the polls show the presidential election much closer in recent weeks than anyone expected, has finally made others sit up and take notice.

And now we’re witnessing the free-trade, anti-Trump backlash.

Thomas B. Edsall cites the same Peter Goodman article I did last week, which included this astute observation:

Across much of the industrialized world, an outsize share of the winnings has been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs and suffered from joblessness and deepening economic anxiety.

But then Edsall goes all in with the mainstream economists who, as part of their unchanging mantra, celebrate free international trade.* He cites, as one example, Erik Brynjolfsson, an economist at M.I.T.’s Sloan School of Management:

No nation can succeed by trying to protect the past from the future. We will succeed by having the confidence to embrace competition, and leveraging our comparative strengths, which are numerous. We have the largest, most productive and most technologically advanced economy that’s ever existed on this planet. The more open the world economy is, the more we have an opportunity to leverage our many strengths.

My sense is that mainstream economists are doubling down on their free-trade argument, forgetting about the “ordinary laborers [who] have borne the costs and suffered from joblessness and deepening economic anxiety,” for two major reasons.

First, they fervently believe in free trade, because their models are designed to ignore the unequal costs and benefits of international trade. That is, the “gains from trade” that supposedly accrue to everyone are literally baked into their models. And they’re afraid to admit that some gain, and many others lose, under existing international trade regimes and agreements. They’re afraid because admitting the unequal outcomes opens the door to intervening and creating patterns of trade that might actually help workers and other losers within the current arrangements. They’re also fearful of incurring the wrath of other mainstream economists, who attack any exceptions to the free-trade mantra with a vengeance (as even Paul Samuelson discovered).

Second, mainstream economists are doubling down on their defense of free trade because they’re willing to say anything and everything to attack Trump. Just the fact that Trump has had the temerity of criticizing free-trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership, thereby creating (in the eyes of mainstream economists) the specter of protectionism, has led them to cast aside all caution and reinforce their uncritical support for free trade. (Edsall even invokes the long-discredited idea that the Smoot-Hawley Tariff Act was “one of the principle causes” of the first Great Depression to make the case.) But, of course, in their determination to oppose the Republican candidate, mainstream economists also dismiss the indignities and injuries many of Trump’s supporters have suffered in recent decades.**

International trade is not the only thing hurting American workers. It’s probably not even the major factor. Decades of stagnant wages, rising inequality, outsourcing, and job-displacing technological change created by their employers are, in my view, even more important. But mainstream economists’ and pundits’ all-out defense of free trade, their refusal to recognize the unequal benefits and costs of globalization, and their determined efforts to let employers completely off the hook are among the important reasons that, against all odds, Trump is only 5-6 points behind in the national polls.***


*It should come as no surprise that, according to the International Monetary Fund, the World Bank, and the World Trade Organization, the solution to the problems of international trade is. . .more trade.

**Many of Clinton’s supporters have also been harmed by U.S. economic policies, including international trade agreements.

***I wrote this post before the revelation of the 2005 Trump tape and the Wikileaks publication of the emails concerning Hillary Clinton’s speeches. Given the media coverage of the two events (plus whatever happens in the Sunday debate), my guess is the new polls will register a much larger lead for Clinton—and there will be much less discussion of international trade (or economics of any sort) in the weeks ahead.


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Mainstream economists, such as Harvard’s Gregory Mankiw, celebrate international trade (including outsourcing, which they argue is just another form of international trade) at every opportunity. But right now, voters—especially in the United States and the United Kingdom—aren’t buying what mainstream economists are selling. They are (as I’ve argued here, here, and here) ignoring the so-called experts.

That rejection clearly disturbs Mankiw, who just adds fuel to the fire by arguing that the more education people acquire the more they will eventually come around to his view. The implication, of course, is that being against free trade is a sign of ignorance.

We all know that Mankiw and his mainstream colleagues have spent an enormous amount of time and effort—in abstract modeling and lending their support to trade agreements, in the classroom, research, and the public arena—extolling the benefits of more international trade.


But it’s clear, not only from the Brexit vote and the rhetoric on both sides of the current U.S. presidential campaigns, but also from a survey earlier this year by Bloomberg, that many people remain opposed to free international trade: 65 percent favor restrictions on imported goods to protect American jobs, 44 percent think NAFTA has been bad for the U.S. economy, and 82 percent are willing to pay more for U.S.-made goods.

Clearly, mainstream economists’ campaign hasn’t worked. So, Mankiw turns to the research of two political scientists, Edward Mansfield and Diana Mutz (pdf and pdf) to find what he wants: anti-trade sentiments are positively correlated with isolationism, nationalism, and ethnocentrism and negatively with level of education. So, in his view,

there is reason for optimism. As society slowly becomes more educated from generation to generation, the general public’s attitudes toward globalization should move toward the experts’.

What I find interesting in Mansfield and Mutz’s research is actually something quite different: people’s attitudes toward international trade (including outsourcing) are not determined by narrow self-interest (such as their job skills or the industry within which they work) but, rather, by the “collective impact that trade policy has on the nation” (what they refer to as a “sociotropic influence,” because of the tendency to rely on collective-level information rather than personal experience).

That result is important because it suggests both mainstream economists and the general public, who may be and often are using very different representations of the economy, have an equally global view of the impact of international trade. Both groups are referring to and forming their judgements based on the nation as a whole. However, while mainstream economists tend to celebrate international trade based on the idea that the nation as a whole benefits (because of the efficient allocation of resources, cheaper imports, and so on), everyday economists may be emphasizing the fact that their nation is internally divided. Thus, in their view, many of their fellow citizens have been negatively affected by international trade and the only real beneficiaries are their employers. So, they continue to be critical of free trade and international trade agreements (such as NAFTA and the Trans-Pacific Partnership).

As I see it, more education won’t eliminate that critical view—as long as trade agreements are enacted within a profoundly unequal society and workers have no say in designing the policies that govern international trade.


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