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Free trade but ...

Michael Kinsley
Washington Post
January 9, 2004

One of the tiresome conceits of political debate is that when opponents agree on something, it is more likely to be true. Another is that an assertion is more credible if it comes from someone who used to assert the opposite.

The joint byline on The New York Times op-ed page Jan. 6 -- ‘‘By Charles Schumer and Paul Craig Roberts” -- certainly was a shocker. Schumer is a liberal Democratic senator from New York; Roberts is one of the wildest of the bug-eyed supply-side conservative economists. Schumer's connections to the financial establishment and Roberts' free-market ranting make their message surprising as well: They have turned against free trade. But two people can be just as wrong as one.

Like most of the Democratic presidential candidates, including front-runner Howard Dean, Schumer and Roberts are now for ‘‘free trade but.” Almost everyone acknowledges some exceptions to the general rule that a nation is better off if it doesn't try to tell its citizens what they are allowed to buy from or sell to foreigners. A free-trade-but person is someone whose exceptions take a big bite out of the rule itself.

Schumer and Roberts are alarmed by some of the effects of the hightech revolution. And the alarm is understandable, if misguided. When David Ricardo first articulated the theory of free trade a couple of centuries ago, he was thinking bushels of wheat. In the 20th century, it was cheap clothes and cars. But now we're talking electronic blips of

information. So you've got $20,000-a-year software engineers in India replacing $150,000 software engineers here. The consolation for losing, say, the shoe market to some dirt-poor Third World country was that we still had the market for computers. When foreigners started churning out computers, we still had the software. But when you've got doctors in Asia reading the brain scans of patients here in the United States, what is left? How can America possibly compete?

The core of free-trade theory is the concept of ‘‘comparative advantage.” Schumer and Roberts make the classic college-student mistake of confusing comparative advantage with absolute advantage. Nations trade because for each one, there are goods or services it is more efficient to buy from abroad than to produce at home. If there is nothing America can offer the world that is either uniquely desirable or cheaper than elsewhere, the world will not buy anything from America. And after a while, the world won't sell anything to America either, because we won't have the foreign currency to pay for it. So even in this extreme case, there is no need to restrict trade, because trade will restrict itself. But in fact, as Ricardo demonstrated, there will always be something worth trading. Even if Nation A can produce both apples and oranges more efficiently than Nation B, it will still make sense to concentrate on producing one fruit and import the other. And Nation B will make itself poorer, not richer, by keeping out fruit from Nation A. If Nation A retaliates by keeping out fruit from Nation B -- and why shouldn't it? -- Nation B will be

doubly punished.

That's the theory. It's pretty rocksolid. You can reject it in its entirety -- as, for example, Dick Gephardt, the most protectionist of the leading Democratic presidential candidates, pretty much does. But most critics don't have the guts to defy reality or conventional wisdom (take your pick) to that extent. Schumer and Roberts cling to the free-trade label and endorse the general principle, while claiming it no longer applies because ‘‘the factors of production can relocate to wherever they are most productive.” In fact, that makes the theory even more compelling. If the factors of production become more productive, the whole world becomes richer. If there is some explanation of how a society can get richer by denying itself the fruits of this process (and most likely curtailing the whole process itself, as others misguidedly retaliate), Schumer and Roberts do not offer or even hint at it. Traditionally, the most troublesome thing about free trade -- apart from the difficulty of convincing people that it works -- is the unequal distribution of its benefits. The whole country is better off, but there are winners and losers. Generally, the losers are lowerincome workers, whose jobs are the easiest to duplicate in less developed countries. It seems misguided to me to avoid a policy that makes the whole nation richer because it makes some individuals poorer. With more to play with, it ought to be easy to ease the burden on free trade's losers. Of course, under a Republican administration, we don't do nearly enough of that. So a

respectable case can be made that some trade restrictions are justified, even though they leave all of us a little worse off, if they prevent some of us from being a lot worse off.

But the real difference between traditional trade in heavy, earthbound objects and 21st-century trade in weightless electronic blips, or in sheer brainpower, is that the losers in new-style trade are more likely to be people that U.S. senators and fancy economic consultants actually know. These are people with advanced degrees and high incomes. Their incomes will likely be aboveaverage for our economy even if they are driven down by competition from poorer economies. Under these circumstances, denying the benefits of free trade to the whole nation -- and denying opportunity to the rising middle class in developing countries -- to protect the incomes of a relative few seems harder to justify, not easier, than it was back in the days when our biggest fear was Japanese cars.

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