Informed Speculation

Robert Samuelson comes out swinging against trade obstructionism in the Washington Post:

We are dealing with something new here. It transcends traditional protectionism, which tries to shield specific industries and workers from imports. It’s trade obstructionism: a reflexive reaction against almost any trade agreement. The idea is that much trade is inherently “unfair.” Multinational companies use it to ship U.S. jobs abroad; other countries compete unfairly with low wages and substandard labor practices. (Indeed, lax labor standards are cited to oppose the Peruvian and Colombian agreements.) Vast U.S. trade deficits measure the destructiveness. If trade is so unfair, why encourage more of it?

Much of this indictment is wrong or wildly exaggerated. For example, American trade deficits haven’t destroyed U.S. job creation by sending work abroad. Consider: From 1980 to 2006, the trade deficit jumped from $19 billion to an estimated $786 billion, or from less than 1 percent of gross domestic product to about 6 percent. Still, employment in the same period rose from 99 million to 145 million. Job creation defies the trade deficits, whose causes lie largely beyond our control and have little to do with “unfair” trade practices.

Faster economic growth in the United States than in many of our major trading partners has stunted our exports and increased our imports. Likewise, the dollar’s role as the main global currency — used for trade and international investment — has kept its exchange rate high. Companies, individuals and governments hold on to dollars rather than selling. This makes U.S. exports more expensive and imports cheaper. To be sure, that puts U.S. factory workers and farmers at a disadvantage on world markets. The disadvantage is compounded when some countries (China) keep their currencies artificially undervalued. Inevitably, some jobs move abroad and some factories close because of import competition.

But there are also larger truths. One is that China’s surging exports have (so far) come mostly at the expense of other Asian countries. Goods once shipped from Taiwan or Thailand now arrive from China. Another truth is that U.S. jobs are destroyed for many reasons — new domestic competition, new technologies, changing consumer tastes, the business cycle. A remarkable statistic: Every three months, 7 million to 8 million U.S. jobs disappear and roughly an equal or greater number are created. Trade is a relatively minor factor in job loss.

It is, however, an easy scapegoat. It enables critics to blame foreigners and suggest a solution: restrict trade. “Economic change is disruptive,” says economist Douglas Irwin of Dartmouth College. “If the cause is technology, you can’t do much about it.” Globalization becomes a convenient explanation for many economic discontents, from job insecurity to squeezed living standards.

Hence, trade obstructionism.

2008 is shaping up to be one of the clearest cut elections of my lifetime.  On the foreign front, the question for the candidates will be, “What do you intend to do about terror (particularly the nuclear variety)?” On the domestic front, the question will be, “Do you support the historic free-market capitalism that undergirds the United States and has made it the most prosperous country in history?”

The wrong answer to either of those questions could be catastrophic…