The unfair competition argument and the push for a 'Temu tax'

There are many arguments put forward for why trade should be restricted. In my ECONS102 class last week, as part of our topic on international trade and globalisation we covered five of the most common, each of which has a little story that goes along with it:

1. The jobs argument: Trade with other countries will lower prices for goods and services where our country has a comparative disadvantage. This will reduce the quantity that domestic firms produce, and the number of people that they employ.
2. The national security argument: Some goods and services are vital to national security. A conflict that disrupted trade in those goods and services would have serious negative impacts, so it may be better for our country to produce those goods and services itself, rather than relying on trade.
3. The infant industry argument: Some industries are likely to be important for the future growth prospects of our country, but right now our firms in those industries are small and can't compete with firms from other countries. It might be best to protect those industries now, giving them a chance to grow, and take advantage of learning curve effects and economies of scale.
4. The 'protection as a bargaining chip' argument: Our country often has to negotiate with other countries, and having trade restrictions in place now gives us something that we can offer up in order to get a better deal in those negotiations.
5. The unfair competition argument: Firms in different countries are subject to different laws and regulations (such as consumer protection laws, labour laws, and environmental laws), giving firms from relatively lightly regulated countries a cost advantage over firms from countries that are relatively more heavily regulated.

The unfair competition argument has been playing out in New Zealand recently, in relation to local retailers having to compete with foreign producers such as Temu. As the New Zealand Herald reported back in April:

Carolyn Young, chief executive at Retail NZ, said New Zealand could look at what France and South Africa had done, as models of how a tax or levy could be applied to help local retail.

France is implementing an environmental fee on ultra-fast fashion brands, which will rise to €10 ($20) per item by 2030.

“When you think about a business in New Zealand, they pay New Zealand staffing rates. They comply with the health and safety regulations in New Zealand and their products do as well.

“They have to comply to the Fair Trading Act and the Consumer Guarantees Act. There’s always costs involved in those areas. And anything you get in from offshore, you have no idea what their labour environment is like or what they’re paying their people. The product doesn’t have to meet any health and safety standards and they’re not compliant with New Zealand regulations around fair trading and consumer guarantees.”

She said the Government should impose stronger measures to help level the playing field, such as a levy paid by shoppers.

“If you were buying from offshore, what we would want to see is that there would be a levy that would be applied to that, that would be at a level that would be some sort of equaliser between what New Zealand businesses have to do and comply with.

Notice that is almost exactly the unfair competition argument I outlined earlier. Young also points to the jobs argument as well, saying:

“Will everybody come back from shopping with them? I don’t know, but we have to try because that’s just going to make it much more difficult because as soon as you shop offshore, the money goes offshore.

“It doesn’t stay in New Zealand, doesn’t create jobs in New Zealand, doesn’t, you know, keep businesses open. And at some point, that’s going to really matter.”

She said if everyone would shop in New Zealand, it would help the economy significantly.

The 'help the economy significantly' statement needs some pushback. A tax on products that consumers buy from Temu will mean that the prices consumers pay will be higher. They would pay higher prices on goods they buy from Temu. And because the 'Temu price' that domestic retailers have to compete with would be higher, domestic retailers would face less downward pressure on their prices and consumers would therefore likely be paying a higher price when buying locally as well. When Young says that a 'Temu tax' would "help the economy significantly", what that means is that it would help domestic retailers, who could charge a higher price, and would sell more products to domestic consumers, if the cost of buying from Temu were higher because of the 'Temu tax'. The government would benefit somewhat from the additional revenue from the tax. But those gains to retailers and the government need to be balanced against the losses for domestic consumers.

Each of the arguments against free trade also has one or more counterarguments. In the case of the unfair competition argument, consumers who care about differences in labour standards, environmental protection, or consumer rights can already choose to buy from domestic retailers. To some extent, the fact that many do not suggests that they value the lower prices available from overseas retailers more highly than the additional protections that domestic regulation provides. Of course, that counterargument is weaker if consumers lack information about where or how goods are produced, or when the regulations are addressing external costs that consumers do not themselves bear.

Overall, in the absence of some market failure that the 'Temu tax' is correcting, the gains to domestic retailers (increased 'producer surplus') and the government (increased tax revenue) need to be weighed against the losses to domestic consumers (decreased 'consumer surplus'). In the standard tariff case, those losses tend to outweigh the gains, resulting in lower total welfare overall (see this post, which explains the welfare changes in detail). A 'Temu tax' might be a good idea politically, but it is unlikely to be a good idea economically. It certainly isn't the case that it would "help the economy significantly", unless you mostly ignore the costs it would impose on domestic consumers.

Sorry US tomato growers, consumers will be worse off from of the anti-dumping duty on Mexican tomatoes

The Financial Times reported last week (paywalled):

In July, President Donald Trump sided with Florida farmers, imposing a 17 per cent anti-dumping duty on Mexican tomatoes and accusing producers of selling at less than the cost of production. US growers see the levy, which took effect in July and is separate from broader trade tariff negotiations, as a lifeline for their declining industry...

Mexico supplies more than 60 per cent of the fresh tomatoes consumed in the US, a stark example of how the country has won market share across sectors to become the US’s top trading partner since the North American Free Trade Agreement came into effect in 1994.

That has also made it a prime target for Trump since his first presidential campaign. The duty is part of a glut of allegations of trade violations he has thrown at Mexico, alongside broader pressure on security and migration.

The tomato duty, which uses a different legal instrument to regular tariffs, is the first Trump trade levy to directly target a fresh food staple...

Price data has not been released for the period after the new duties were imposed. US growers say farm-level prices could rise, which would eat into retailers’ and distributors’ profits but would not necessarily affect regular Americans. But Mexico’s National Agricultural Council said the consumer would pay, predicting prices would go up 11.5 per cent.

Gándara said if US companies want to produce more, it would require large investments in expensive land and technology, which inevitably would lead to higher prices.

The US growers are not correct here. Regular Americans will be paying more as a result of this anti-dumping duty (which has the same effect as a tariff). This is shown in the diagram below, which shows the American market for tomatoes. With no international trade in tomatoes at all, the market would operate at equilibrium, with a price of P0, and Q0 tomatoes would be traded. However, the domestic price of tomatoes (P0) is higher than the world price (PW). This means that the US has a comparative disadvantage in producing tomatoes. In other words, other countries can produce tomatoes at lower cost (specifically, lower opportunity cost) than the US. One of those countries with a comparative advantage in producing tomatoes is Mexico. If the US allows international trade in tomatoes, US consumers will realise that they can buy tomatoes much cheaper from Mexico than from domestic US tomato growers. The price for tomatoes in the US market will drop to be equal to the world price PW. At this lower price, US consumers will buy more tomatoes (QD0). However, US tomato growers will only be willing to supply QS0 tomatoes at this lower price. The difference between QD0 and QS0 is satisfied by imports of tomatoes.

Now consider what happens if an anti-dumping duty (or a tariff) is imposed. If consumers want to buy tomatoes from the international market, they must now pay the world price PW plus the tariff. The price for tomatoes in the US market will increase to PW+T (where T is the per-unit size of the anti-dumping duty). At this higher price, US consumers will buy less tomatoes than without the tariff (QD1), but US tomato growers will be willing to supply more (QS1). The quantity of tomato imports decreases to the difference between QD1 and QS1. This was the purpose of the anti-dumping duty, of course - to keep a lot of Mexican tomatoes out of the US market.

However, who pays the cost of the tariff? We can work this out by thinking about the areas of economic welfare. Consumer surplus is the difference between the amount that consumers are willing to pay (shown by the demand curve), and the amount they actually pay (the price). In the diagram, at the equilibrium price and quantity (without trade), consumer surplus is the area AEP0. Producer surplus is the difference between the amount the sellers receive (the price), and their costs (shown by the supply curve). In the diagram, at the equilibrium price and quantity, consumer surplus is the area P0ED. Total welfare is the sum of the two areas (consumer surplus and producer surplus), and is equal to the area AED.

With international trade (but no import tariff), the consumer surplus increases to the area AFPW. Producer surplus decreases to the area PWGD. Total welfare is the combined area AFGD. Notice that US tomato consumers are better off with trade, but US tomato growers are worse off. As a whole, US society is better off, because total welfare is larger (by the area EFG - this is a measure of the gains from trade).

Now consider what happens when the anti-dumping duty is applied. Consumer surplus decreases to the area ABK. Producer surplus increases to the area KCD. The government gains tariff revenue equal to the area CBJH (this is the per-unit amount of the anti-dumping duty, multiplied by the quantity of imports subject to the duty). Total welfare is all three of these areas added together, which is the area ABCD+CBJH. In other words, the anti-dumping duty makes US tomato growers better off (higher producer surplus), and makes the government better off (due to the duty revenue). However, the import tariff makes US tomato consumers worse off (lower consumer surplus), and US society as a whole worse off (lower total welfare). The loss of total welfare is equal to the areas BFJ+CHG - this is the deadweight loss of the import tariff.

So, it turns out that US consumers do end up paying part of the anti-dumping duty. They pay a higher price (PW+T instead of PW), and they lose some consumer surplus (their consumer surplus is smaller by the area KBFPW). US tomato growers may want to claim that tomato consumers will not be made worse off by the anti-dumping duty, but the growers are clearly not right about that.

Who pays for Europe's tariffs on Indonesian biodiesel?

My ECONS102 class covered international trade last week, so it was interesting to see import tariffs in the news. As Reuters reported:

Asked about this situation, a European Commission spokesperson told reporters that the EU was confident its duties on Indonesia were in full compliance with WTO rules and that the EU was ready to discuss the matter with Indonesia.

Trade relations between the EU and Indonesia have been strained by the bloc's move to limit imports of commodities linked to deforestation, which is expected to curb EU imports of palm oil from top suppliers Indonesia and Malaysia.

As well as biodiesel, palm oil is used widely in food and cosmetics.

Welcoming the European Commission's investigation, the European Biodiesel Board said it estimated that imports circumventing duties may have cost the EU around 221 million euros ($240.34 million) last year.

The association was also working with EU authorities to address allegations of fraudulent biodiesel imports from China, it added in a statement.

Let's put aside the issue of avoiding the import tariffs (or duties) - we'll come back to those later in the post. Instead, let's focus on the effect of an import tariff on the market for biodiesel in Europe. This is shown in the diagram below. [*] With no international trade in biodiesel at all, the market would operate at equilibrium, with a price of P0, and Q0 biodiesel would be traded. However, the domestic price of biodiesel (P0) is higher than the world price (PW). This means that Europe has a comparative disadvantage in producing biodiesel. In other words, other countries can produce biodiesel at lower cost (specifically, lower opportunity cost) than Europe. One of those countries with a comparative advantage in producing biodiesel is Indonesia. If Europe allows international trade in biodiesel, European consumers will realise that they can buy biodiesel much cheaper from international sources. The price for biodiesel in the European market will drop to be equal to the world price PW. At this lower price, European consumers will buy more biodiesel (QD0). However, European biodiesel producers will only be willing to supply QS0 biodiesel at this lower price. The difference between QD0 and QS0 is satisfied by imports of biodiesel.

Now consider what happens if an import tariff (or import duty) is imposed. If consumers want to buy biodiesel from the international market, they must now pay the world price PW plus the tariff. The price for biodiesel in the European market will increase to PW+T (where T is the per-unit size of the import tariff). At this higher price, European consumers will buy less biodiesel than without the tariff (QD1), but European producers will be willing to supply more (QS1). The quantity of biodiesel imports decreases to the difference between QD1 and QS1. This was the purpose of the tariff, of course - to keep a lot of Indonesian biodiesel out of the European market.

However, who pays the cost of the tariff? We can work this out by thinking about the areas of economic welfare. Consumer surplus is the difference between the amount that consumers are willing to pay (shown by the demand curve), and the amount they actually pay (the price). In the diagram, at the equilibrium price and quantity (without trade), consumer surplus is the area AEP0. Producer surplus is the difference between the amount the sellers receive (the price), and their costs (shown by the supply curve). In the diagram, at the equilibrium price and quantity, consumer surplus is the area P0ED. Total welfare is the sum of the two areas (consumer surplus and producer surplus), and is equal to the area AED.

With international trade (but no import tariff), the consumer surplus increases to the area AFPW. Producer surplus decreases to the area PWGD. Total welfare is the combined area AFGD. Notice that European biodiesel consumers are better off with trade, but producers are worse off. As a whole, European society is better off, because total welfare is larger (by the area EFG - this is a measure of the gains from trade).

Now consider what happens when the import tariff is applied. Consumer surplus decreases to the area ABK. Producer surplus increases to the area KCD. The government gains tariff revenue equal to the area CBJH (this is the per-unit amount of the tariff, multiplied by the quantity of imports subject to the tariff). Total welfare is all three of these areas added together, which is the area ABCD+CBJH. In other words, the import tariff makes European biodiesel producers better off (higher producer surplus), and makes the government better off (due to the tariff revenue). However, the import tariff makes European biodiesel consumers worse off (lower consumer surplus), and European society as a whole worse off (lower total welfare). The loss of total welfare is equal to the areas BFJ+CHG - this is the deadweight loss of the import tariff.

So, the import tariff policy has a cost to society (equal to BFJ+CHG). Ideally, you would want there to be an offsetting benefit worth at least as much. The benefits of the tariff are (hopefully) less deforestation in Indonesia, and associated pollution (from burning forests), environmental and public health impacts.

Of course, the import tariff also makes Indonesian producers of biodiesel worse off, because they cannot sell as much into the European market (because their biodiesel is now more expensive due to the tariff. [**] That creates incentives for the Indonesian producers to try to avoid the tariffs. The European Union is alleging that this is what the Indonesian producers have done, by selling their biodiesel to entities in China and Britain (which apply low or no tariffs to imported biodiesel), and then re-exporting the biodiesel from those countries into the European Union (and the EU applies low or no tariffs to biodiesel imported from those countries). This sort of activity is extraordinarily difficult to police, because commodities like biodiesel can be difficult to trace. It will be interesting to see how this case plays out over the coming months.

*****

[*] I'll discuss this diagram as if it is the whole European market for biodiesel. However, you can easily interpret it instead as the European market for Indonesian biodiesel.

[**] The gains or losses to international producers and consumers are not shown in the market diagram above, which only demonstrates impacts within the European market.

Now cheesemakers want an anti-dumping tariff on cheese

Last month, I posted about New Zealand farmers arguing for an anti-dumping ban on imported frozen potato fries. The farmers were not successful in their arguments. However, that hasn't stopped the next group from trying, this time cheesemakers are looking for new tariffs on cheese, as reported by Rural News:

Simon Berry, managing director of Whitestone Cheese and spokesperson for New Zealand Specialist Cheesemakers Association on EU tariffs and trade, says up to 25% of retail cheeses are imported – mostly subsidised European cheeses.

With imported cheeses often selling for around half the price of local ones New Zealand producers are struggling.

Berry says Kiwi cheese producers can’t compete with cheap European product flooding into the market and wants an anti-dumping duty to be placed on some imported speciality cheeses.

This week, my ECONS102 class is covering international trade, so I thought it might be timely to discuss why import tariffs (such as the 'anti-dumping duty' the cheesemakers are arguing for) are bad in terms of economic welfare. Consider the market below. The demand curve shows the demand from domestic consumers, while the supply curve shows the supply by domestic suppliers. If there was no international trade, the market would operate in equilibrium with a price of PD, and QD cheese would be traded. The consumer surplus (the difference between what the consumers are willing to pay, shown by the demand curve, and the amount they actually pay, PD) is the area AEPD. The producer surplus (the difference between the price that producers receive, PD, and their costs, shown by the supply curve) is the area PDED. Total economic welfare is therefore the area AED (made up of consumer surplus and producer surplus).

Now consider international trade. Say that the world price of cheese is PW, and is lower than the domestic equilibrium price PD. Let's also assume that the world market can supply as much cheese as New Zealand consumers want at the price PW. If the domestic market was opened to international trade, domestic consumers would find it cheaper to buy cheese from the international market and would do so. Domestic consumers would increase their purchases of cheese to Qd1. Domestic producers would have to meet the world price of PW, since no consumer would be willing to pay more than PW for cheese (since they can buy cheese on the world market for PW). Domestic production of cheese would fall to Qs1. The difference between Qs1 and Qd1 is the quantity of cheese imported. In terms of economic welfare, consumer surplus increases to the area AFPW - consumers are made a lot better off. Producer surplus decreases to PWGD - producers are made a lot worse off, so it is no surprise that they would argue against open international trade of cheese. However, total economic welfare is now the area AFGD. The gains to consumers more than make up for the losses to producers, and society is better off in terms of total welfare, by the area EFG - this represents the value of the gains from trade of cheese.

Now consider what happens if the government puts an anti-dumping duty (a tariff) on cheese imports. This is illustrated in the diagram below. Now, if consumers purchase from the world market for the price PW, they have to also pay the tariff. So, effectively the price for consumers increases to PW+T. They will reduce their total purchases of cheese to Qd2. Domestic producers now don't have to compete with the price PW, they have to compete with the price PW+T. So, the domestic production of cheese increases to Qs2. The quantity of imports of cheese falls to the difference between Qs2 and Qd2. In terms of economic welfare, consumer surplus decreases to ABK - consumers are made worse off by the tariff, compared with free international trade. Producer surplus increases to KCD - producers are made better off by the tariff (which is why they would argue in favour of it). Taxpayers receive some benefit from the tariff, in terms of government revenue. This is the quantity of imports (Qd2-Qs2), multiplied by the per-unit value of the tariff (T), which is the area CBJH. That tariff revenue is part of economic welfare, because the government can use it to pay for schools, roads, hospitals, and so on. Total economic welfare now is made up of consumer surplus, producer surplus, and government revenue - it is the area ABCD+CBJH [*]. Compared with free international trade, total welfare is smaller by the area BFJ+CHG - this is the deadweight loss of the tariff.

Import tariffs decrease total welfare. They make domestic producer surplus bigger, but make consumer surplus smaller, and the loss in consumer surplus is larger than the gain in producer surplus. As a whole, society is made worse off.

Having said that, there are arguments that could be made in favour of this particular anti-dumping duty. One argument that we discuss in our ECONS102 class is unfair competition - where international firms have lower costs due to lighter regulation than domestic firms, international firms are placed at an unfair advantage in competing with domestic firms. The cheesemakers here are arguing slightly differently:

Berry says there has been a gradual growth in imported EU cheese over the past three years.

With strong marketing and distribution networks, these high-volume subsidised EU cheeses are undercutting NZ cheesemakers.

If EU cheesemakers have large subsidies, then that means that they can sell at lower prices and still make a profit. That puts them at an advantage relative to New Zealand cheesemakers, who are unsubsidised. The question for a policy maker though, is whether acting to reduce this unfair competition provides benefits that are sufficient to offset the loss of economic welfare from the anti-dumping duty. How much cost should the New Zealand consumer bear in order to support the New Zealand cheesemaking industry?

Read more:

• Why consumers won't resist an anti-dumping ban on potatoes, even though they should

Judge rules that snuggies are blankets, not clothes

Whatever faults you think New Zealand's GST regime has, the one thing it is definitely not is overly complex. At least, not in comparison to similar VAT or GST regimes in other countries. New Zealand's GST applies at the same rate (currently 15%) to pretty much all goods and services with the exception of some zero-rated services like dwelling rents, interest payments and some other specified financial services (see here if you are interested, or if you are an insomniac looking for a cure). Overall, this makes it fairly easy to work out which goods and services attract the tax, and what rate applies. It also avoids costly and stupid legal cases like the great Jaffa Cake controversy in the UK (a controversy that was reignited by an episode of The Great British Bakeoff - I kid you not). Anyway, on the original controversy, the Guardian reported:

As a nation we face many challenges and issues that no doubt we should be keenly debating. However, when gathered around their kettles you are just as likely to hear a couple of Brits trying to decide on the precise phylogeny of the biscuits, bars and assorted cakes that they are about to dispatch with their brew. To many of us, trying to win acceptance for our world view on whether a certain item is a cake or biscuit seems like quite an important task.

Typically, this debate has raged most fiercely over the Jaffa Cake, which despite being called a cake and having sponge cake as its base will always be viewed by many as a biscuit. However, within the industry its long been known that there is a Cinderella figure in the "cake or biscuit" debate, the teacake, which was once a cake, then became a biscuit and then a cake again.

"Does it really matter?" you may wearily sigh. Well, in the case of the Jaffa Cake it mattered a great deal to the taxman, as the somewhat bizarre rules concerning which products were subject to VAT and which escaped it due to zero-rating were a bit woolly in regard to the inhabitants of the biscuit kingdom. As a cake, the Jaffa was zero-rated, and given how many of them we see off as a nation that equates to a great deal of missed revenue. Biscuits are zero-rated too, unless they are "luxury" items, which according to the guidelines includes any that have chocolate on top. Cakes, no matter how opulent or fancy, are always classed as a staple food and zero-rated. In 1991 McVitie's and the taxman famously had their day in court and after a 12-inch-wide Jaffa Cake was produced as evidence they found, that while the product also had characteristics of biscuits or confectionery which was not cake, it had sufficient characteristics of cakes to be a cake for the purposes of zero-rating.

That's right. A court was asked to rule on whether a Jaffa Cake was a cake (and therefore attracted no VAT) or a 'luxury biscuit' (in which case VAT would apply). In a similar vein, I read with interest this story about Snuggies from last week:

Snuggies -- the wearable fleece coverings found on infomercials -- is now considered a blanket and cannot be taxed as clothing following a decision by the United States Court of International Trade.

The U.S. Justice Department argued in court that Snuggies are apparel and should be subject to higher taxes than blankets. The court disagreed, and found that Snuggies should be considered blankets and taxed at a lower amount.

Judge Mark Barnett's ruling means that instead of paying 14.9 percent duties when bringing Snuggies into the U.S., importers will only have to pay 8.5 percent duties, according to Bloomberg News.

Chalk it up to the craziness of tax and tariff administration. Luckily we have no such foolishness here. Yet. Which is why we should avoid any temptation to carve out exemptions or reduced rates of GST, such as for 'fresh food'. I'm sure based on the two examples above you can imagine some interesting cases of what constitutes 'fresh food' if this sort of proposal went ahead.

[HT: Marginal Revolution]

New arguments against free trade

Earlier in the month, The Economist reported on the rise of anti-dumping tariffs:

Dumping is the practice of selling goods in foreign markets at an unfairly low price—typically, one lower than the going rate in the exporter’s home market. Anti-dumping measures are intended to prevent a company from selling goods below cost in order to drive competitors out of business, before using the resulting market power to gouge customers.

So countries create additional tariffs to apply when foreign firms are thought to be using otherwise free trade to 'dump' their products into the domestic market. However, as Gary Becker has noted (for example, in this book), this type of predatory pricing is probably not sustainable. If you drive competitors out of the market and raise your prices, then new competitors will enter, assuming that the fixed costs of production aren't high enough to constitute a barrier to entry (which is arguable for some industries, such as steel production). However, even if there are high fixed costs, if you have relatively free trade then competitors from other countries can also step in when the predatory pricing stops.

There are other arguments put forward in favour of anti-dumping tariffs (from the same Economist article):

In Britain, where rock-bottom global steel prices now threaten Tata Steel, the owner of the country’s biggest surviving mill, proponents of tariffs argue that it is important to preserve domestic steelmaking to ensure supplies for the defence industry, among others.

The 'national security' argument is an old favourite of some anti-free-trade groups, particularly those that stand to benefit directly from trade barriers. The Economist points out the folly of the argument:

...it is hard to see how the use of French steel in British submarines harms Britain’s security (its pride is another matter). For manufacturers of all sorts, most notably carmakers, cheap steel is a boon.

In other words, the gains (to domestic consumers, and to domestic manufacturers using steel in production) from free trade in steel probably outweigh the losses (to domestic steel producers). And national security isn't much of a consideration.

But is it always the case that the gains from freer trade outweigh the losses? In another interesting blog piece from earlier this month, Tim Harford writes:

Fifteen years ago, the conventional economic wisdom was that free trade was almost unambiguously a good idea. Here’s the basic logic. There are two ways for the British to get hold of wine. We can grow and press our own grapes, or we can make something that the French want and trade with them. If we’re good at making, say, computer games and the French are good at making wine, then trading is the better way to get what we want...

I’ve been phrasing all this “conventional wisdom” in the past tense but, for the most part, it stands up. However, it is acquiring an important and depressing footnote. A new research paper, “The China Shock”, from David Autor, David Dorn and Gordon Hanson, is part of a rethink under way in the economics profession...

Autor, Dorn and Hanson conclude that the American workers who have been hurt by competition with China have been hurt more deeply, and for a longer period, than many economists predicted. Employment has fallen in industries exposed to trade competition, as expected. But it has not shown much signs of rising in export-oriented sectors.

The research paper by Autor et al. is here (ungated here). Economists recognise that there are gains from trade. In fact, it is one of the things that economists most agree on. However, although there are gains from trade, and therefore gains from making trade freer, those gains are not obtained without cost. When we open our markets to international trade, our export industries (the industries in which we have a comparative advantage) will produce more, while other industries (in which we have a comparative disadvantage) will shut down. In New Zealand we experienced this - which is why we no longer have much in the way of car assembly plants, whereas there were previously several large plants around the country. The conventional wisdom is that there is some short-term pain (workers losing jobs in the industries with comparative disadvantage) for long-term gain (additional jobs in the industries with comparative advantage).

The Autor et al. paper demonstrates that the short-term pain can last much longer than previously thought (the paper is mostly very readable - I encourage you to do so). Although the 'national security' argument is weak, perhaps the so-called 'jobs argument' against free trade has some truth to it after all? Which might give us reason to pause on free trade agreements, particularly when the gains are marginal at best, or occur far in the future (while the costs are incurred in the short-term).