From Paul Krugman:
One thing I’m hearing, now that all hope of useful fiscal policy is gone, is the idea that trade can be a driver of recovery — that stuff like the South Korea trade agreement can serve as a form of macro policy.
Um, no.
...
There is a case for freer trade — it may make the world economy more efficient. But it does nothing to increase demand.
And there’s even an argument to the effect that increased trade reduces US employment in the current context; if the jobs we gain are higher value-added per worker, while those we lose are lower value-added, and spending stays the same, that means the same GDP but fewer jobs.
If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not. If you want the Korea deal, fine; but don’t claim virtues for it that it doesn’t possess.
In my view, his suggestion that CVDs are "job-creating" is only accurate if you are talking about the very short term. You can impose duties on imports (via CVDs or some other mechanism) and that may "protect" specific jobs, in the sense of sheltering them from import competition. But when you do that, there is likely to be a protectionist response from affected trading partners, which could cause you to lose jobs in export industries. So any net job gains will be fleeting, I would think. (And, of course, there will be significant costs that arise from taking these actions!)
On the other hand, I am a little skeptical of claims that trade agreements will be job-creating, at least in the short term. In a nutshell, my view is that the main economic benefit of free trade is greater allocative efficiency for the economy, which improves overall economic welfare. I'm not sure that a shift to freer trade will have a positive net effect on short-term employment levels in the short term, though. Rather, there will be some gains and some losses, in both (or all, in a multilateral agreement) countries. However, in the longer term, the growing economy should lead to higher overall employment.
