Free Trade

FREE TRADE….Color me unsatisfied. Max recommended Jamie Galbraith’s piece on progressive economic policy in The Nation today, so I clicked the link and read it. As it happens, I’m not very comfortable with the current choices on offer in the free trade debate, so I was especially interested in Galbraith’s comments on that. Here’s the nickel summary:

Whether NAFTA created or cost jobs initially, the economies of Mexico and the United States are now about as integrated as they are going to get, and the effect is basically finished….Almost all discussion of outsourcing now focuses on China and India, two countries with whom we do not have, and will not get, free-trade agreements.

….The facts are clear: NAFTA is a done deal, and China is a success story we have to live with. Progressives need a trade narrative that moves past these two issues. Broadly, this means accepting manufactured imports and dropping the idea that we can control — or that it matters much — who assembles television sets or stitches shirts. Standards to guard against flagrant abuses such as child and prison labor are fine, but it’s an illusion to think they will, or should, dent the flow of goods from China. A progressive trade agenda should focus, instead, on building stronger world markets for our exports, and in ways that do not trample on the needs and rights of poor people in poor countries. That should provide plenty of room for future fights with free-trade absolutists.

That’s it? (Yes, it is. The rest of the piece is about domestic policy and international finance.) Basically, Galbraith suggests that free trade agreements don’t really do much harm to the U.S. economy (“they don’t prevent full employment in the United States”), but also don’t help much (“the productivity gains…brought on by NAFTA in the mid-1990s were trivial if detectable at all”). We should worry about the predatory effect of free trade agreements on poor people in other countries, but that’s about it.

I suppose that may be true. I wonder what guys like DeLong and Krugman think of this? Is the whole free trade debate really just a tempest in a teapot?

UPDATE: Galbraith responds in comments:

Briefly: my focus is not on “free trade,” but on “free trade agreements” — the mainly bilateral (in NAFTA’s case, trilateral) documents that have been the practical focus of the trade debate. The commenters, by and large, are absorbed in a theoretical discussion, and Kevin muddies the issue by describing the debate over NAFTA as though it were a debate over “free trade.”

For example, “lord mike” writes that the effect of “NAFTA and other trade agreements… is to facilitate the importation of goods.” This sounds plausible — after all, what else is a “free trade” agreement likely to be about? — but it isn’t really true.

The maquiladora system existed before NAFTA; average tariffs on manufactured goods coming from Mexico to the US were around three percent (e.g., trivial) before NAFTA, and, by the way, China isn’t a member of NAFTA or any other bilateral trade agreement with the US.

So, the beginning of sense in this debate is to get off the theoretical high horse and ask, would getting rid of NAFTA actually accomplish anything the anti-trade folks want to accomplish? Answer: no, it would not.

If the commenters are, on the other hand, arguing that the U.S. should renounce NAFTA, the WTO and the rest of the postwar trading system, cut the flow of goods from China (and our exports of aircraft, computer systems, communications networks, energy services, and the rest to that country and the rest of the world), and build an autarkic national system (including the big wall along the Rio Grande this would require), well, then they’re in an alternate universe altogether.

My point is one that holds in the present universe: nothing about the U.S. position in the world prevents full employment at good wages. If you want proof, just look at the statistics for 1997-2000. It happened. There is no good reason it can’t be made to happen again, hence no reason to go on demonize the Mexicans, the Chinese or our other trading partners.

Two quick comments on points of fact:

1) the U.S. and China have had a memorandum of understanding against the use of prison labor in exported goods since the early 1990s. There is no reason to think that this is a major issue in U.S.-China trade at present or (therefore) that new standards would add anything to the existing ones.

2) when I said that an RMB revaluation would not bring a single low-wage job back to the U.S., I meant that exactly: not a single one. The reality here is that China is not our only potential trading partner. Making Chinese workers less competitive will cause factories to locate in (say) Indonesia long, long before it brings any jobs back here.