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A public policy blog from AEI
Paul Krugman’s New York Times opinion piece that ran on Friday, “Oh, What a Trumpy Trade War!” contains a number of wise observations. All too often in the past, Mr. Krugman’s poisonous hatred of all things Republican has gotten in the way of his deep knowledge of the economic basics and political complexities of trade policy.
But more to the point, Krugman is dead on in his analysis of the political economy of trade policy. Thus he notes:
There’s a reason we have international trade agreements, and it’s not to protect us from unfair trade practices by other countries. The real goal, instead, is to protect us from ourselves: to limit the special interest politics and outright corruption that used to reign in trade policy.
He goes on to explain:
Contrary to what some seem to believe, textbook economics doesn’t say that free trade is win-win for everyone. Instead, trade policy involves very real conflicts of interest. But these conflicts of interest are overwhelmingly between groups within each country, rather than between countries.
Krugman recounts how FDR introduced the principle of reciprocity in the 1930s, whereby the US agreed to lower its tariffs if other nations followed suit. Politically, this introduced exporters as a potential counterweight to industries under pressure from foreign competition. Roosevelt’s bilateral arrangements evolved into the postwar multilateral trading system under the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO). And in a strikingly affirmative judgment on the GATT/WTO system (as compared to some earlier doubts), Krugman writes:
The overall effect of the evolution of the world trading system has been very salutary. Tariff policy, which used to be one of the dirtiest, most corrupt aspects of politics both in the U.S. and elsewhere, has become remarkably (though not perfectly) clean.
President Trump’s reintroduction of unilateral trade sanctions under the bogus claim of national security will take us back to the “bad old days.” Other nations will retaliate, and “if this escalates into a full-scale trade war, we’ll be back to the bad old days. Tariff policy will once again be driven by influence-peddling and bribery, never mind the national interest.” One has only to remember the Carrier Company/Lockheed-Martin bullying and the Boeing threats to see this transpiring in real time.
Not unexpectedly, the “bad old days” is accompanied by a bit of the “bad old Krugman,” as he places the blame for the advent of Trump on the business community and “free-market ideologues.” As a (non)card-carrying member of the free-market ideologue brigade, I still agree with Krugman that on trade policy “Trumpism is all about belligerent ignorance across the board.”
But Krugman also needs to explain why the wholesale trade interventionism espoused by the trending Bernie Sanders wing of the Democratic party (which has loudly applauded the steel/aluminum tariffs) won’t end up with the same old “Trumpian” crony capitalism. A future column maybe?
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