At RealClearPolicy Vance Ginn and Kiara Pillay make a pretty typical comparative advantage argument in favor of trade. It can be summarized as “don’t worry about huge trade deficits with China—we benefit from them”:
If having imports greater than exports really made people worse off, there would be widespread unemployment and poverty. This misconception goes back to the mercantilist argument that isolationism and government export supports are the keys to prosperity. Rejecting this ideology has led to massive prosperity.
Simply, free trade allows Americans the ability to satisfy their desires by purchasing goods and services of better quality or lower price elsewhere. If that happens to lead to more purchases from other countries than they purchase from us, and therefore a trade deficit, then so be it.
Imports support job creation and are an essential part of a well-functioning economy. By importing cheaper electronic equipment from China, for example, not only do consumers pay less for the things they want, but producers also pay less for the technology they need to run their businesses. Collectively, this generates more economic activity in the U.S. than there would be otherwise.
I had the following reactions to that.
- I probably understood comparative advantage before you were born.
- I’ve read David Ricardo’s works. Have you?
- There is nothing whatever in his works that would lead one to the conclusion that the income realized through increased economic activity (GDP) realized attributable to comparative advantage is allocated in a fair, equitable, optimal, or even desireable manner.
- Persistent large trade deficits with China mean that the Chinese are subsidizing American consumption at the expense of American employment.
There’s a deeper question that I think needs to be considered. When more than 90% of the increases in income go to the top 1% of income earners (the point that Bernie Sanders hammers in practically every stump speech), ordinary people are not much vested in increases in economic activity. On top of that when they’re losing their jobs and, as has been highly publicized with respect to the Disney organization, forced to train their replacements who’ve been brought in from abroad, increasing hostility to foreign trade is understandable.
You forgot to include “Get off my lawn” among your reactions.
🙂
Nah. If you’re going to cite comparative advantage, you need to understand it. It’s not a talisman that you wave around. Off-hand I’d say that 99.9% of economists have only read other people’s explanations.
Back in the olden days when I was taking economics most of the economic surplus was being captured by the middle class. That isn’t true any more and arguments that held water 50 years ago using that assumption just aren’t any good any more.
The best case would be everything being produced in China. How anybody would pay for these fabulously priced goods is beyond me, but I am not as smart as the people who cannot grasp the concept of unsound money.
The authors are treating comparative advantage as a concept like “love”; assuming it is playing a concrete pivotal, natural and just role in each countries’ production. It’s like they think China and the U.S. have whatever their advantage is stamped across their borders.
You bring to mind another point. When the factors of production are themselves portable, comparative advantage no longer obtains.
Number 4 is the heart of the matter. All the talk is just justification for the side you pick.
Any idea why so many economists, especially libertarians but not just them, just ignore the time factor? In the long run I think it is generally clear that trade is good. However, that does not preclude major disruptions, including ones that cause too many losses, in the short run. Sure, creative destruction is wonderful, but not so much when more people are being destroyed than helped. (I had a bit of a go around with Don Boudreaux over this. He essentially just claimed that since trade is good by definition, it is impossible that it would ever cause more harm than good, unless, of course, government was involved.)
Steve