Saturday, 18 February 2017

Tim Harford on trade

Tim Harford quite often writes about trade. I particularly liked some of the things he wrote in this post last week, since they echo ideas that I discuss in both ECON100 and ECON110:
Economists disagree about most things, but for a couple of centuries they’ve agreed about the merits of free trade, basically for the reasons outlined above. But some readers may be faintly aware of cracks in that consensus — haven’t economists realised that free trade is sometimes bad?
Broadly, the answer is “no” — economists remain thoroughly persuaded of the merits of international trade. But there are cautionary notes. First, modern trade agreements tend to be loaded with rules — food safety, financial regulation, intellectual property — that are not about tariffs. Some of these rules are closely connected with trade itself: long arguments at customs can restrict trade just as surely as a border tariff. But others have little to do with trade, and sometimes the rules are simply bad. So you can favour free trade yet oppose some “free-trade” agreements, as many economists do.
I encourage you to read all of Harford's post, if you have any doubts about why free trade is a good idea. However, 'free trade' is not the same as 'free trade agreements' since most free trade agreements aren't about making trade more free at all, in the sense of reducing tariffs and other trade barriers. The Trans-Pacific Partnership is a case in point. While New Zealand may have gained from reduced tariffs for our exports into the U.S. and Japan, the neo-colonial provisions on intellectual property and investor-state dispute resolution to me made it a hard sell that the net effect was positive. And when you consider the distributional impacts of the agreement (where the gains would be concentrated among farmers and other exporters, with the potential costs borne by everyone), it becomes an even harder sell. And it is this last point (the distributional consequences of trade) that has arguably contributed to Brexit, Trumpism, and other populist movements.

Harford also covers a similar point:
But deep down, trade is just another kind of productive technology — a technology that turns Minis into camembert [MC: To understand that point, you need to read Harford's whole post]. Like any productive technology, it makes us richer. But it creates winners and losers, and the winners may take their good fortune for granted while the losers are acutely aware of what they’ve lost. The losers have votes too. And if they’re frustrated about China, let’s see what happens if self-driving vehicles put several million truckers and taxi drivers out of work.
It's important for us not to lose sight of the fact that there are winners and losers in trade, and as this post notes, those who lose may face long-term consequences that governments have not traditionally allowed adequate compensation for.

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