I agree with a few things in Megan McArdle’s latest defense of free trade at Bloomberg. For example, this:
I’ve already confessed that I, like many free traders, underestimated the effect of China’s 2001 accession to the World Trade Organization, which gave it broad access to global markets. The sudden addition of several hundred million low-wage workers to the world labor market has been a catastrophic event for parts of the U.S. economy that suddenly had to compete. The protectionists were right that free trade was causing problems, and we were wrong.
I’m not a protectionist (more about that later) but I’ve been warning about looking at China through rose-colored glasses for the last 35 years. It’s good of her to acknowledge that she was wrong. She was and is. Granting China Most Favored Nation trading status as well as admission to the WTO should have been predicated on China’s divesting publicly-owned industries and opening up its banking system rather than taking those steps under the assumption that they would. And I agree wholeheartedly with this:
For one thing, China really was unique; there’s no other country that’s going to suddenly add so many workers to the market.
which is precisely why China should have been required to reform first.
Managed trade which is what we have is not free trade. You cannot attribute the benefits of free trade to a system of managed trade in any meaningful sense. Rejecting that managed trade ipso facto has the benefits of free trade does not make me a protectionist. Just the opposite.
IMO Megan would benefit from quantifying her claims. It would stop her from making excessive statements like this:
The Big Three made a pretty good car in the 1950s, even though they were effectively an oligopoly shielded from foreign competition. But by the 1970s … well, there’s a reason few people fantasize about owning a mint-quality 1977 Chrysler Cordoba.
The difference between regulating trade China as we do now and more restrictively isn’t the difference between getting modern automobiles and being stuck with 1970s automobiles. It means paying less than $100 more for an iPhone, a couple of hundred bucks more for that 70 inch flatscreen, and a couple of hundred bucks more for a small automobile than we do now. A slightly small quantity will be sold and you’ll have neighbors who make or build iPhones, flatscreen TVs, and engines for small automobiles.
It means more prosperity not just here but in Mexico and the Philippines and Brazil and a hundred other places where competition from China and its unenforced or nonexistent labor and environmental laws keep costs so cheap.
I think that tariffs on Chinese goods manufactured by forced labor or in unsafe conditions or that doesn’t meet environmental standards will meet WTO muster and if China protests to the WTO, protest right back. China still hasn’t made the reforms it agreed to when it was admitted to the WTO. It’s about time.
“For one thing, China really was unique; there’s no other country that’s going to suddenly add so many workers to the market.”
India. Anyway, with trade there is always the possibility of large disruptions. If you take the approach that markets will just eventually sort things out, then it may take a long time for that to happen and some people will suffer disproportionately.
Steve
Well, as Keynes said, in the long run we’re all dead. I guess there are a number of different ways of looking at that. One is “this time is different”, an argument I’m seeing a lot of these days. If this time really is different, you’ve got to question the assumptions, i.e. that the market will eventually sort things out.
Another is that if, indeed, the market will eventually sort things out, it makes a lot of sense to put in a lot more active measures to remediate the harm. The winners can pay for it. Since it will all be sorted out eventually, the remediation measures will only be temporary.
Another reaction would be just to let the chips fall where they may. The caution I would place on that is that there are still a lot of places where guillotines can be set up.
Missing the point to beef about China, I suspect. Even before Apple and other firms started moving all their manufacturing off to China, Taiwan and Japan and Korea were selling electronics in this country at an ever increasing clip, and American companies were moving production of autos and textiles and TV sets and so on down to Mexico and off to Europe. All the job losses connected to “Globalization” could have occurred if China had never existed.
So the problem wasn’t that China was a special case. The problem’s that economists as a group smiled at “free trade” proposals and blessed them, virtually without reservation. That businessmen anticipated wealth would befall unto them with globalization and induced politicians to enact laws and policies which enabled their schemes, again almost en bloc, And that the wealth which resulted was basically absorbed by businessmen and stockholders, at the expense of the (former) workers who have been rather blatantly — and deliberately — overlooked for the past thirty years or so.
Really, businessmen in the late 20th and early 21st centuries have proven to be rather nastier people than poor old Karl Marx ever imagined. At some point introductory economic texts are going to acknowledge this — some of them at least. And at some point, the government’s going to give business another Progressive Era-style shakeup. Probably when we’re all safely dead.