Revisiting the case for free trade
A show of hands: How many of you remember Gregory Mankiw?...
Yes, Mankiw was the wise White House economic advisor who said in 2004 that outsourcing is “probably a plus for the economy in the long run”—a comment not appreciated by U.S. manufacturers and their workers.
Last week Mankiw returned, publishing a New York Times op-ed renewing the call for a "free trade" trade approach to globalization. In his piece, Mankiw naively assesses current trade by deploring critics who "think that competition from China and other rapidly growing nations was one of the larger threats facing the United States."
Actually, we here at Manufacture This would say exactly that. And we base it on the facts of our time: Millions of U.S. jobs continue to travel overseas. China pirates U.S. intellectual property, hacks servers and email, spews industrial waste in such quantities that it crosses the Pacific Ocean and pollutes our west coast. China is rapidly building a military designed to challenge U.S. defenses...
Sorry, what part of "friendly" are we missing here, Greg?
All right, let's step back a moment. Let's let someone else tackle Mankiw.
Princeton economics professor Uwe Reinhardt found Mankiw's piece troubling enough that he decided to revisit the notion that "every country gains by unfettered international trade."
In a rebuttal New York Times piece, Reinhardt exposes the limitations of Mankiw's worldview:
In their work, economists typically are not nationalistic. National boundaries mean little to them, other than that much data happen to be collected on a national basis. Whether a fellow American gains from a trade or someone in Shanghai does not make any difference to most economists, nor does it matter to them where the losers from global competition live, in America or elsewhere.
Where Mankiw fails, according to Reinhardt, is that there is no consideration of "how fellow Americans fare in the matter of free trade."
Simply put, job loss has consequences. In the real-world, when people are laid-off, bad things happen.
Furthermore, Mankiw's free trade orthodoxy inexplicably overlooks the protectionism practiced by China. Reinhardt alludes to this, saying that many Americans might balk at a "lower-priced scarf if it were offered not by an American but by a low-cost manufacturer in Shanghai..."
What Mankiw ignores is that China can produce scarves at a lower price specifically because they violate free trade rules through the use of dumping, subsidies, and currency manipulation. Any one of these practices would be egregious. But add them together and you have a powerful shot of steroids for China's exporters-- not the sort of friendly competition upon which free trade is expected to depend.
Good work, Professor Reinhardt, for injecting a note of real-world caution into Mr. Mankiw's naive preaching.
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