Trade Theory Textbook Goes in the Trash

Peter Morici, Chief Economist at the U.S. International Trade Commission from 1993 to 1995 (those dark days of NAFTA implementation), has a new op-ed out today, entitled “Why Free Trade is Failing America”. A lot has changed since his tenure at the USITC. He's now a professor at the University of Maryland and he recognizes that the assumptions underpinning arguments for trade liberalization sometimes never hold true:

No economic policy could better serve Americans than genuine free trade but open trade policies are failing Americans.

Free trade is a compelling idea. Let each nation do more of what it does best, and specialization will raise productivity and incomes.

Americans are not sharing in those benefits because President Barack Obama, like President George W. Bush, permits China and others to cheat on the rules, unchallenged, to the detriment of the U.S. interests he was elected to champion…

Unfortunately, U.S. imports exceed exports by another $400 billion, and workers released from making those products go into non-trade-competing industries, such as retailing, in which productivity is at least 50% lower. This slashes gross domestic product by about $200 billion, overwhelming the gains from trade, and requires workers displaced by imports to accept lower wages.

Comments

[Paul Bigioni]

Classical free trade theory never imagined that capital would be permitted to cross national borders. Because capital is now transnational, free trade cannot, EVEN IN THEORY, create net gains for all based on comparative advantage. All it can do is increase the absolute advantage of the trader with little or no social benefits to the peoples of the trading nations. Smith, Ricardo and Cobden would have recognized this. There has never been any sound academic basis for what now passes as "free trade". Trade policy since the late 1970's has been nothing more than a licence for transnational business to participate in the "consipiracy against the public" which Adam Smith warned of.

The era of globalization is characterized by massive and sustained flows of capital from poor nations to rich ones, supervised by the WTO and controlled by the wealthiest nations. It therefore seems that "free trade" is merely a disguise for the state-managed mercantilism that Smith railed against in The Wealth of Nations.