Free Trade Butters

“I’m for free trade but” usually means you’re not for free trade at all.

Schumer: free trade plus a big old but

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 butter (FTB) 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 high-tech 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 heavy metal 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 rock-solid. 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 and/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 persuading 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 lower-income 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 earth-bound 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 above average 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—in order 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.

The “but” of Howard Dean’s “free trade but” is more traditional (see the trade section of his Web site for a concise summary). He professes concern about lost blue-collar jobs here in America; about scandalously low pay and miserable working conditions in Third World factories that export to American consumers; about the ravaging of the environment by these same factories. Dean endorses the principles of the International Labor Organization, which include freedom to organize and bargain collectively, abolition of slave and child labor, and non-discrimination. He says he’s all for trade—he just wants a “level playing field.”

This package of concerns and rhetoric is more or less state-of-the-art for a mainstream Democratic presidential candidate. But it confuses, either naively or purposely, two different issues: guaranteed minimum standards for labor and equivalent standards in the United States and elsewhere. The hard-core free-trade position is that working conditions in other countries are none of our business. If someone wants to sell us stuff for a price we want to pay, that’s all we need to know. Trade and the rising prosperity it brings will, if anything, increase the pressure for capitalism and democracy.

The reasonable free-trade position (i.e., mine) is that buying a product does implicate you to some extent in the process by which it was made. And there are working conditions so wretched and wages so low and practices, like child labor, so heartless that you do want your own government to ban imports of the product at issue, to avoid the taint of association and, with luck, to pressure the exporting nation to change.

But this is very different from demanding a “level playing field” on environmental regulations, worker health and safety, and so on. American standards on these things are a luxury of affluence. If we had insisted on these standards for our own economy while we were becoming affluent, we never would have gotten there. And indeed, the effect of a “level playing field” rule—blocking imports that weren’t produced in accord with American-level regulatory standards—will not be to make jobs in poor countries as well-paying, safe, and good for the environment as jobs in America. The effect will be to wipe out those jobs.

And that is not just the effect of the “level playing field” concept. It is the very purpose. “Level playing field” advocates—including, most prominently, the labor unions—say that it will prevent American jobs from being stolen. Another way to say this is that it will prevent jobs in poor countries from being created. Essentially, the “level playing field” concept forbids poor countries to take advantage of their poverty. When poverty is their main asset, this is no favor.