Free Trade Ad Nauseam

Feb 29, 2012 Jagdish Bhagwati

So much has been written, by so many, against the muddled ideas that have now overwhelmed good sense on trade policy in the US government that one wonders whether there is anything left to say. Unfortunately, there is.

NEW YORK – So much has been written, by so many, against the muddled ideas that have now overwhelmed good sense on trade policy in the United States government that one wonders whether there is anything left to say. Yet it is worth recalling what Pierre-Joseph Proudhon reportedly told the Russian intellectual Alexander Herzen: “And do you imagine that once a thing has been said, it is enough?....It has to be dinned into people, it has to be repeated over and over again.”

What we need now is a primer on the major misconceptions in the hope that, unlike Gresham’s Law, which says that bad money drives out good money, good economics will drive out bad economics. Four, in particular need to be corrected.

The first misconception is that exports create jobs, while imports do not – a fallacy that the great trade economist Harry Johnson traced to mercantilism, and which the US has resurrected. In fact, in a world where parts and components come from everywhere, interference with imports imperils competitiveness. The success of parcel-delivery companies, for example, depends on imports, which must be brought from the borders inland, as well as on exports.

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Jagdish Bhagwati

Writing for PS since 2010
28 Commentaries

Jagdish Bhagwati is University Professor of Law and Economics at Columbia University and Senior Fellow at the Council on Foreign Relations. A renowned expert on international trade, he has served in top-level advisory positions for the World Trade Organization and the United Nations, including Economic Policy Adviser to the Director-General, GATT (1991-93), and Special Adviser to the UN on globalization. He is the author of many books, including In Defense of Globalization.

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Procyon Mukherjee Mar 1, 2012

There are some finer points that should not be missed like American imports are labor intensive and exports capital intensive, its net impact on employment is negative. The question is in which direction the comparative advantage is moving and what is the objective function; boosting trade by lowering net employment is hardly a sensible direction for the economy. If manufacturing should not be given a special status and the financial sector should not be shunned, and if clusters do not have any intrinsic advantage, what remains is a bizzare status quo. Could we afford one?

Procyon Mukherjee
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Mary Kay Plantes Feb 29, 2012

I agree with almost everything you have written. However, from the perspective inside a company the synergy between where R&D is done and where manufacturing is done is quite apparent, just as there are synergies between where products are made and where they are purchased. Synergies include not merely cost synergies, but also speed and the ability to create differentiation that benefits customers in some way. It thus strikes me that the movement of many manufacturing industries entirely off shore will, if companies make rationale decisions, lead R&D to follow as gaps between R&D capabilities in the US and other nations close. Yes the internet allows people to communicate easily and quickly across shores. But I doubt economists understand the travel implications of R&D separated from manufacturing for workers and their families and how that shapes company decisions going forward, especially as they try to win the GenX and GenY talent wars.
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