“Trade is a real test of leadership since its benefits are often less obvious than its downsides.”–David Ranson, H. C. Wainwright Economics, Inc. in the Wall Street Journal, 2-6-08.
How true, and how difficult for the Republican Party, which, at least at the Presidential level, has been the leading free trade party for many decades, while the Democratic Party has essentially become officially anti-free trade. But the conundrum and the difficulty is manifest in Republican and free-trader Congressman Kevin Brady’s observation that the free trade issue makes for a lot of temptation to be a populist. No problem for Mike Huckabee, who won the endorsement of the machinists union with such statements as “I’m running for President because I don’t want people who have worked loyally for a company for 20 or 30 years to walk in one morning and be handed a pink slip and told ‘I’m sorry, but everything you’ve spent your life working for is no longer here'”. This brand of populism plays well with protectionists, but that won’t keep America in world trade leadership.
Recent polls show that Americans are trending against free trade–46% of adults think free trade agreements hurt the U. S., 16 points more than in 1999, and 59% of Republican primary voters said that free trade has been bad for America. Several years ago, Sen. Charles Schumer was traveling around with economist Paul Craig Roberts, not exactly a raving liberal, making the case that David Ricardo’s centuries old and widely held concept of comparative advantage among nations is no longer viable because the factors of production that were historically relatively fixed in place are now those such as technology, ideas, and capital that can be moved with a computer click. What do we do about all of this, or more particularly, what does government do about it?
First, as always, do no harm. And one of the ways to avoid harm is to take the issue seriously, because if the debate is between those who dismiss the problem and those who have a bad solution, the bad solution folks will win. And simply to recite old maxims will not do it. We must have a serious and substantive debate about how to deal with the realities of globalization on the ground with real people–people who don’t have the necessary skills for adaptation or the money or the mobility for retraining and relocation. And incidentally, this should include a debate on the continuing viability of the doctrine of comparative advantage.
Paul Samuelson, probably the leading free trade enthusiast in the economics profession, notes that Ricardo’s theory, fully implemented, implies that worldwide income per capita increases enough so that the winners will more than offset the losers, but he is concerned that wealthy countries like the U. S. may be among the losers, while India and China will be the big winners. And he is probably correct in terms of traditional value-added measures, but America’s value-added comparative advantage is more about ideas and innovation than things. Which is my opening to say that it will be the transformation of K-12 education in this country (or our failure to drastically transform it) that will have more impact on our success in dealing with the challenges of free trade than any other factor.
There are plenty of ideas afloat. All the Presidential candidates have issued their detailed approaches. And like most policy proposals they interconnect with other policy issues, like farm subsidies and labor and environmental regulations, for example. So look closely and let the debate rage on.