by Daniel Griswold
Free Trade has endured since Adam Smith as a robust theory, and it has proven itself in practice across the decades as being superior to government restrictions.
There is nothing new in Ian’s theoretical critique of free trade. In a 1996 book, Against the Tide: An Intellectual History of Free Trade, Douglas Irwin of Dartmouth shows that Ian is just the latest in a long line of critics who have claimed that we can make ourselves wealthier by restricting trade. As Irwin demonstrates, economists keep coming back to free trade as the best policy because it has proven durable in theory as well as practice.
As for free trade in practice, Ian’s selective story telling is at odds with the cumulative evidence. For example, it is simply not true that all or even most job growth in recent years has been in lower-paying occupations such as “waitresses and security guards.” BLS data show that most net new jobs since 1991 have been created in those service sectors—education, health care, financial activities, business and professional services—where the average wage is higher than in manufacturing. Expanding trade has helped Americans move up to occupations that are more productive and better paying.
Ian claims that America expanded in the 1800s because of protectionist policies. That’s another myth. The sectors that lead America’s productivity growth in the latter 19th century were not the protected industries, but services such as transportation, distribution, utilities, communications, and construction. Growth was further spurred by mass immigration and foreign investment, accommodated by a string of annual trade deficits after the Civil War.
The high trade barriers back then that Ian yearns to restore actually damaged the productivity of U.S. industry by driving up the cost of capital machinery. It exposed consumers to domestic oligopolies, spurring the rise of anti-trust laws. Those trade barriers did nothing to protect Americans from frequent boom and bust cycles. As I document in my book, economic downturns were longer, deeper, and more frequent during the protectionist era. And let’s not forget that the Great Depression occurred on the protectionists’ watch.
As for the decline of the global poverty rate since 1981, does Ian really believe that China’s rapid growth in the past 30 years is because of communism and protectionism? If so, why didn’t China grow even faster under Mao, and why isn’t that formula working now for North Korea? In reality, China’s growth has been spurred by its reforms away from a closed and centralized economy.
China has not been the only developing country to unilaterally lower its barriers and reap the rewards. According to the World Bank, the poverty rate in developing countries excluding China fell from 40 to 28 percent between 1981 and 2005. Rising levels of trade and foreign investment have been far more effective than foreign aid in reducing poverty.
Trade has played a role in spreading freedom more broadly by expanding the middle class and empowering individuals with new ideas and tools of communication. According to Freedom House, the share of the world’s people who enjoy full political and civil liberties has risen from 35 percent in the early 1970s to 46 percent today.
America’s “greatest generation” learned from the Great Depression and World War II, dumped protectionism, and embraced more open trade as an instrument of peace as well as prosperity. Those wise policies knit us closer to our allies and virtually eliminated the threat of war within Western Europe. Today, in our more globalized world, fewer people are dying in wars than at any time since World War II.
Returning to a mythical protectionist past would put all those gains in jeopardy.
*********************************
Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute, a non-profit, non-partisan think tank in Washington. He is author of the new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, available at Amazon.com and major bookstores. More information about Cato and Mad about Trade can be found at freetrade.org and danielgriswold.com. His email is [email protected].
(For the protectionism view, see Ian Fletcher's post here)
