Are we seeing a resurgence of protectionist thinking? Via Todd Tucker, here is Princeton economist Uwe Reinhardt criticizing the economic arguments for free trade:
... economists view the world as a giant cattle farm to be managed in ways that maximize the collective weight of the cattle, totally in abstraction from the welfare of any individual animal. We call the collective weight of the cattle social welfare.
The cattle-farm model then allows us to say, with a straight face, that if a public policy bestows a gain of $2,000 on George but makes Martha $1,000 poorer, social welfare has been increased.
This dictum underlies the economist’s case for free trade. The cattle farm is global. Free-trade analysis pays little attention to the love people have for their own nation, which makes them assign more weight to the welfare of fellow citizens than to that of citizens of other countries.
I wish he would elaborate a bit more, so that I could be sure I knew exactly what he was saying. Based only on his blog post, though, I think he has somehow missed an important point. Yes, many free traders support free trade because George's gain is greater than Martha's loss (although there are other reasons as well). But that doesn't mean free trade analysis ignores people's love for their own nation. Not that free traders are particularly nationalistic, but if they were, nationalism would provide a pretty good reason to support free trade. I'm not sure what nationality "George" and "Martha" are in his example, but regardless of what he had in mind there, under free trade the nation as a whole is now better off because the gains to citizens outweigh the losses. So, if you want to improve the welfare of the nation, free trade is the way to go.
More importantly, though, you can't look at free trade in isolation. Rather, you have to compare it to the alternative. What the protectionists are saying, taking up Reinhardt's example, is that social welfare is increased when George is $2,000 poorer and Martha is $1,000 richer. Again, I don't know what nationalities he had in mind for these two, but regardless, the point is that the losses to citizens caused by protectionism outweigh any gains. I'm not sure how you can, with a straight face, say that this increases the social welfare of a nation. Protectionism does not help the nation. It helps particular interest groups at the expense of other interest groups.
Obviously, the issues are more complex than this, in particular the issue of short-term versus long-term effects on employment, but I just wanted to address this specific example.
In Todd's post, he also references Ian Fletcher's recent work in support of protectionism. I get emails from Fletcher a couple times a week with links to his latest short article criticizing free trade. Todd says that Fletcher is "making many supporters of status quo trade policies uncomfortable." Recall that I reviewed Fletcher's book here. In his book, he proposes a “natural strategic tariff.” As an example of this, he suggests “a flat tax on all imported goods and services” as the best approach. He mentions a figure of 30%. Looking over the criticisms I set out in my review, I still find them pretty convincing. I don't think that a proposal to impose 30% tariffs on all imported goods and services is making anyone on the free trade side uncomfortable. It just seems so far-fetched as a practical matter, and so easily rebutted in terms of the substance. Even though many people are skeptical of free trade agreements right now, it is hard to imagine them supporting such a proposal. If this is the public face of protectionism, free traders may be able to relax a bit.
