Thoughts on free trade - We Op-Ed - A Community for Political News and Civilized Debate
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We Op-Ed - A Community for Political News and Civilized Debate

Free trade is a tricky subject for politicians running for office because the pragmatic thing to say about it during elections, if said, will only hurt the politician when she takes office. The reason is that during elections, one has to play to the immediate interests of a group of voters, though in so doing, ignore the long-term interests of the population as a whole. In particular, politicians demonize free trade during elections because it is a ready scapegoat for domestic economic problems, though the politician knows that free trade is good for the country in the long-run. In an interview with Charlie Rose, Noam Chomsky discusses the general form of this political problem when he notes that issues on which the elite unanimously agree and which go against the short-term interests of a group of voters will be ignored in the political debate because of the problem they would pose to politicians, should they come up in public discussion.

Free trade does not fit Chomsky's model exactly, because politicians do talk about it; but the issue does fit the model in that politicians will rarely say anything more about free trade than a superficial comment in praise or attack for the purposes of ingratiating oneself with a voting bloc. Hence, we see Democratic candidates for president talking tough about free trade in Ohio and Texas, states with large poor, working populations, though not proposing any detailed plans or making any clear promises for action once they take office.

So, with plenty of lip-service being paid to the evils of free trade, and little reasoned analysis being offered, I thought I'd bring a piece of evidence to the debate.

Joint with Economist James Harrigan, I recently made a study of the United States' trade policy with China. Prior to 2005, the US restricted the quantity of textile and apparel with China (and others) with a rigid quota system. On Jan 1st, 2005, the US lifted its quota system, initiating a period of free trade in textile and apparel with China. In our study, we find that the price of goods from China that were previously constrained by quotas fell on average 38% in 2005, while goods that were not previously constrained did not fall at all. We use this piece of evidence to argue that the quota system was artificially keeping prices on textile and apparel high from China. We then compute the effect of the quotas on the prices paid by US consumers and find that the quota system was costing the average US household $88 a year, or 6% of the average household's annual apparel budget.

That's a costly trade policy, but it seems even worse when you consider this: The quotas were presumably in place to protect the domestic textile and apparel production market from foreign competition. In 2004, there were 700,000 US workers in the textile and apparel sector, with an annual salary of $31,000. If we take the consumer cost of the quota system and divide it by the 700,000 US workers, we find that the quota system was costing the consumer $13,000 per job protected, or 40% of the average wage in the industry. Now, that's huge.

Free trade is an issue that's pretty cut and dry: Prosperous nations trade. I don't think there is a lot of dispute on this point. Of course, there are serious disagreements about how to shape trade policy- issues of labor standards, environmental standards, capital investment, and a lot more. But I think it is important to remember, when politicians prop up free trade as a straw man and pummel him to score points with the economically marginalized, that the data tells a different story- a story they don't want to talk about, until after the election, anyway.

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