2008 January 04 Friday
Growing Opposition To Economic Globalization

Robert Samuelson sees the return of mercantilist trade policies.

Here's today quiz. What do the following have in common: (a) Vladimir Putin; (b) China's currency, the renminbi; (c) the U.S.-Peru trade agreement; and (d) Hugo Chávez? Answer: They all reflect the "new mercantilism." It's an ominous development affecting the world economy. Even as countries become more economically interdependent, they're also growing more nationalistic. They're adopting policies intended to advance their own economic and political interests at other countries' expense. As practiced until the mid-19th century, mercantilism aimed to do just that.

Samuelson fears that rising resentment toward China's currency manipulation and trade surplus combined with a recession could lead to tariffs and import quotas. My own take is that economic interdependence can go too far and cause people to feel lots of resentment about decisions taken by foreign governments. The economists seem to discount the desire to feel in control of one's life. But it is a very real need and a practical one.

Supporters of free trade in the United States would gain more credibility if they acknowledged the accuracy of many criticisms made about globalization.

But would a global slowdown change that if other countries blamed Chinese exports for destroying their domestic jobs? Would import quotas or tariffs follow? Already, China has turned from the world's largest steel importer to the largest exporter, says Lardy. In the United States, the present pattern of global trade is viewed with increasing hostility: U.S. deficits are seen as eroding industrial jobs while providing surplus countries with the dollars to buy large pieces of American firms.

How can making goods cheaper or more expensive via currency manipulation not be as bad as doing it with tariffs? Yet the advocates of lower tariffs rarely argue against currency manipulation. Why is that?

A rising percentage of the US population sees free trade agreements as harmful.

The 2008 presidential candidates can see that voters are in a sour mood on trade. An NBC News/Wall Street Journal poll earlier this year found that 46 percent of adults thought that free trade agreements hurt the United States, 16 points more than in 1999. Protectionist sentiment seems to be growing fastest among Republicans. In a September NBC/Wall Street Journal poll, 59 percent of Republican primary voters said trade has been bad for America.

Many of this year's major presidential candidates — nearly all Democrats and Republican populist Mike Huckabee — have responded by promising tough trade negotiations to give American workers a break and raise standards worldwide.

"We need trade without tradeoffs for America," former Sen. John Edwards, D-N.C., said in a speech at an Iowa union hall on Aug. 6. He vows, if elected, to put "regular families" ahead of the interests of multinational corporations.

The continued large US trade deficits and the currency manipulation that helps to cause them make quite a few people (myself included) skeptical of the idea that low tariffs equal free trade. How can going into hock to the world be a good development? How can large scale intellectual property theft be a good development?

Republican and Democratic Presidential candidates have gotten much more critical of aspects of globalization. This makes the elites sniff with disdain. The New York Times sees critics of large US trade deficits as supporters of protectionism.

Democrats have been most tempted by the protectionism. John Edwards likes to talk about how trade agreements like Nafta “have hurt workers and families while helping corporate insiders.” Senator Hillary Clinton has suggested that the economic theories underpinning the cause for free trade no longer hold, and has said she would review all of the United States’ trade agreements.

Even Republican candidates — normally staunch supporters of expanding trade — can sound skeptical. “I don’t want to see our food come from China, our oil come from Saudi Arabia and our manufacturing come from Europe and Asia,” complained Mike Huckabee. Mitt Romney defends globalization’s record of improving living standards, but cannot resist drawing an applause line by adding that the government should negotiate better with other countries to make sure “the American worker gets a fair shake.”

I think we need to stop going further into hock to the rest of the world. I also think that the trade agreements have created the conditions that help us go deeper into hock. But the editors of the New York Times fear that the criticisms of globalization's consequences could get translated into real policies.

It would be unfortunate for the United States if the winner of the 2008 election elevated skepticism toward trade from a red-meat sound bite on the campaign trail to a new wave of protectionist policy.

Free traders are losing the argument.

The most bellicose rhetoric has come from John Edwards, the third-placed Democrat whom polls have shown surging back into contention ahead of tomorrow's Iowa caucuses. He has called for "trade without trade-offs" that puts the interests of "regular families" ahead of multinational corporations.

His message has found a receptive audience among grassroots Democrats who worry about a decline in US manufacturing jobs, wage stagnation and the perceived economic threat posed by China and India. Free trade advocates hope the protectionist rhetoric is a temporary phenomenon as candidates pander to the party base ahead of caucuses and primaries. But there is no guarantee the successful nominee will shift back to the centre before November's election because opinion polls show concern about free trade spreading beyond Democrats. A recent Wall Street Journal/NBC poll found 58 per cent of Americans think globalisation has been bad for the US, up from 42 per cent a decade ago.

Free traders should think less dogmatically and try to look for policies that will allow a substantial amount of international trade to continue while at the same time addressing some of the objections quite reasonable people make about trade deficits, environmental harm, loss of sovereignty, and other concerns.

As Phyllis Schlafly points out globalization comes with international bureaucracies that reduce national sovereignty.

"WTO" now stands for "World Trade Outrage" rather than its original name, World Trade Organization. The World Trade Organization just ruled that the Caribbean nation of Antigua and Barbuda can freely violate American copyrights and trademarks in order to punish the United States for laws prohibiting Internet gambling.

Congress passed the Unlawful Internet Gambling Enforcement Act in 2006 after finding that "Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry." The social and financial costs of gambling would be greatly increased if the United States permits Internet gambling.

The World Trade Organization ordered this punishment because it says U.S. laws interfere with free trade in "recreational services." The foreign tribunal ranks free trade as more important than the intellectual property rights Americans have enjoyed since the U.S. Constitution was written.

I don't want to be ruled by international trade tribunals. Do you? I don't want all internal policies determined by international agencies. I think people should be able to adjust their local and national governments to allow and disallow that which they locally think should be allowed or disallowed. Give people control of their local environments.

Share |      By Randall Parker at 2008 January 04 11:26 PM  Politics Globalization


Comments
John S Bolton said at January 5, 2008 4:31 AM:

There isn't any rational argument for free trade in stolen goods, which forced-savings, currency-support interventions
directed at America really do represent.
Without a convincing argument for openness to such large volumes of stolen goods,
as despotic China sends,
even our most brilliant scholars, speaking within their specializations,
must resort to smearing the opposition as mercantilists and protectionists.
They must smear opponents as violent nationalists,
since placing the global utility function above national interest
allows for indefensible disloyalism.
No matter how brilliant or erudite in their fields,
these scholars can only come up with smears in the
place where a rational argument was rightly to be expected.

Kenelm Digby said at January 5, 2008 5:38 AM:

I believe it was John Maynard Keynes that said that every politician is the slave to some defunct economist.
Basically, politicians, those who actually handle power, are very vain and shgallow people.
They think that by parrotting the viewpoints of 'The Economist' and the WSJ, that they are being 'very wise and very profound'.
Hence, there is very, very little chace of the economic (or immigration) status quo changing.

Bob Badour said at January 5, 2008 6:57 AM:

Sadly, Ricardo is dead in more ways than one. He was killed a second time in 1971 when he legacy was done in. I, of course, blame Johnson, and I wish you Yankees would stop electing god damned Texans! They are evil men.

As we can see with the China example, fiat money turns a positive-sum game into a Prisoner's Dilemma. As long as China (and maybe a handful of others) is the only one manipulating exchange rates on a massive scale, China reaps a huge windfall. As soon as every country tries to do the same thing, we will be back to "beggar your neighbor" trade policies a la the Great Depression.

And why shouldn't the US retaliate? Tit-for-tat, after all, is the best tactic in Prisoner's Dilemma.

Luke Lea said at January 5, 2008 8:22 AM:

Randall, You saw Krugman's piece the other day acknowledging the downside of free trade with low-wage Giga giants like China? 14 years too late! I interviewed him back during the Nafta debates, and he refused to acknowledge this elementary truth -- that trade between high-wage and low-wage countries hurts wages in the high-wage country -- arguing that there were no signs of its happening yet. That is like saying tearing down a dike won't flood a country, because it hasn't happened yet. That generation of economists has a lot to answer for.

Audacious Epigone said at January 5, 2008 9:30 AM:

They're adopting policies intended to advance their own economic and political interests at other countries' expense.

Uh, isn't that exactly what corporations do, if you just replace the word "countries'" with "corporations'"? Funny that these globalists favor laissez faire capitalism at the corporate level, but communalism at the national level.

As practiced until the mid-19th century, mercantilism aimed to do just that.

Right, until the British empire abandoned its mercantilism in favor of free trading policies. By a couple of decades into the 20th Century, the British empire had been brought to its knees, never to enjoy the dominance it had during the height of its mercantalism, having to then be saved by a protectionist nation across the pond. I guess though, the country with a ~zero savings rate, two bubbles built on wealth that didn't exist--first in techs and then in real estate--continually expanding trade deficits, a shrinking manufacturing base, and 4% annual economic growth is doing better than a protectionist China that is growing at 3x that rate with a people that are saving almost half of what they earn.

kurt9 said at January 5, 2008 12:00 PM:

I had this discussion with a friend of mine several months ago. Needless to say, I disagree with you all here.

I have far greater confidence in markets than I ever do in any form of government, including our own.

The West and the East are joined at the hip, economically speaking. The problem with any kind of protectionism is that it favors the large established firms (who have political connections) over everybody else. This is called mercantilism and is essentially a form of corruption. It is not conducive of long-term economic growth.

Randall Parker said at January 5, 2008 1:09 PM:

Kurt,

Markets are only possible because governments exist. You need property rights before trade.

Mercantilism: China is favoring domestic industries. The Chinese government is happy to see native companies steal intellectual property from foreign companies. The Chinese government is happy to put obstacles in the way of foreigners.

What does this do? It increases the economies of scale of the domestic Chinese companies while reducing the economies of scale of the foreign (e.g. American or German or British) companies. It also reduces the return on research and development spending for those foreign companies. So those foreign companies are going to tend to lose in the long run.

kurt9 said at January 5, 2008 5:43 PM:

Guys,

We've been through all of this before. I was at Thunderbird in '90 when there was all of the ranting and raving about the Japanese buying up everything in the U.S. and everyone was afraid of the Japanese juggernaut. I moved to Japan in summer of '91. It was obvious within 6 months of my living there that the Japanese were never going to "take over the world". Their domestic industries were completely regulated and cartelized and, therefor, hopelessly non-competitive. I knew at that time that Japan was not going to overtake the U.S. as the leading economy.

Now we see the whole she-bang with China. Yes, China favors its domestic companies. So what? Government favoritism of a particular industry simply makes it less competitive and, therefor, less of a competitive threat in the long run.

My experience is that government support of an industry eventually kills it because the management culture becomes complacent (the government will always bail us out, etc.) and competitors that are lean and mean due to free market competition eventually move in and eat them for lunch.

If China attempts to repeat the same mistakes as Japan, they will pay the price in the end (just as Japan did).

This is one of the reasons why I do not fear China anymore than I feared Japan in 1991.

Also, it is amusing that the people who believe in protecting American industry do not realize that it is government regulation that is killing the very industry they want to protect. Take the car industry, for example. The fact that there are start-ups that are now making jet airplanes (Eclipse Jets) shows clearly that "capital and labour intense" industries can be done by start ups. Surely a jet plane is not any easier to make than a car. So, the question then becomes: "where are the car start-ups?". Why are there no entrepreneurial car start ups like the 4 jet airplane start up we have here in the U.S. Is it possible that there is some kind of government regulation or favoritism that prevents people from starting new car companies? The last guy who tried to start a car company ended up being prosecuted on trumped-up drug trafficking charges.

The U.S. auto industry is clearly a stagnant industry. It has high costs and structural regidities that make it a good target for entrepreneurs. Yet, unlike these new jet planes, the entrepreneurs are not there. Me thinks there is more to this picture than meets the eye. With all of the new fuel and energy technologies, I would think that there would be opportunities to make new cars based on new technologies (hybrids, electric, fuel cells, etc.).

The other totally regulated and corrupt industry is the medicine. The FDA and AMA make it nearly impossible for innovation (and therefor cost competition) to occur in medicine. The FDA with its regulation and the AMA with its licensure of MD's. Eclipse Jets is the latest example of innovation being done in a stagnant industry by people outside the field (the founders of Eclipse Jets are former Microsoft people). The FDA and AMA make it impossible for outsiders to innovate in the medical field. The only venue of competition is foreign. This is why I am such an advocate of medical tourism and outsourcing.

Corrupt and regulated (same thing really) industries can only be reformed from outside the system. This is the reason why protectionism is so bad and evil. It props up evil corrupt industries that really do need to go away.

kurt9 said at January 5, 2008 5:51 PM:

"The economists seem to discount the desire to feel in control of one's life. But it is a very real need and a practical one."

I agree. Do you think you have a better chance of this by starting your own company, or by working for a large corporation where job security is 15 minutes long?

Control of one's life can only come about by being on one's own, interacting with the rest of the world based on one's own value-added work. This can come about with a dynamic growth economy with lots and lots of start-ups and opportunities. A static economy dominated by government regulation and large corporations is hardly going to help anyone to get in charge of one's own life.

tommy said at January 5, 2008 8:41 PM:
The West and the East are joined at the hip, economically speaking. The problem with any kind of protectionism is that it favors the large established firms (who have political connections) over everybody else.

They are joined at the hip precisely because of the free trade policies you and this generation of economists have supported. I weary of libertarians and globalists who, time and again, sell policymakers and the general public on the supposed benefits of their plans and, when those benefits either fail to appear or come at too high a cost, turn around and say "Oh, well! Not much you can do now, I suppose! By the way, if we should happen to sink further in the mud under this system, it's our own fault anyway!" The bait-and-switch tactics of the free trade crowd are tiresome.

This is called mercantilism and is essentially a form of corruption.

What do you call currency manipulation?

It is not conducive of long-term economic growth.

The long-term economic growth appears to belong almost entirely to a protectionist China under the current scheme.

tommy said at January 5, 2008 8:54 PM:
This is one of the reasons why I do not fear China anymore than I feared Japan in 1991.

Odd then why the trade deficit continues to grow worse - as it has every single time we've opened the door to further with China. If you are correct, shouldn't the protectionist policies of our leading rival be resulting in a decreased trade deficit? When can we expect to see a surplus?

kurt9 said at January 5, 2008 10:26 PM:

Currency manipulation is also a form of corruption. Our FED engages in this as much as the Chinese. The FED, under Greenspan, redefined the CPI several times starting in 1993. They included bogus fudge factors such as "hedonics" and the like. So now the CPI understates inflation by 2-4% annually, depending on who you talk to.

Inflation is simply another name for currency debasement. Our federal government, as does most governments, debases the currency to engage in their deficit spending. Governments that debase their currencies do not deserve to exist.

I do not care if the Chinese manipulate their currency. However, I care very much when our FED manipulates the value of our currency for political purposes (as it has done since 1993). The FED, under Greenspan, created two artificial bubbles (equities in the late 90's and housing during the past 5 years) for no apparent reason other than it was politically convenient for Greenspan to do so. The marketplace distortions resulting from these two bubbles will take years to overcome.

The real problem is not trade deficits or anything like that. The real problem is the explosive growth of the federal government since FDR in the 1930s. Check out the graphs at (http://mwhodges.home.att.net/piechart.htm) to see how much government has grown over the recent decades. It is the growth of government and government regulation that has destroyed economic opportunity and freedom in this country, not "free trade" or "trade deficits" or any other boogiemen politicians throw up to distract us from the real boogieman, big government.

It is not free trade that has destroyed our manufacturing. It is the growth of government and government regulation that has done this. Restricting free trade will not improve the situation. It will only make it worse. The problem will not get better until we roll back the influence of government to the levels we had before the 1960's, if not before FDR.

I came to believe in the early 90's that positive political change will not occur in this country until 51% of the voting electorate are either self-employed or work is small business. I believe this as much today as I did in the early 90's.

kurt9 said at January 5, 2008 10:29 PM:

I also think your guys' attitude is f**ked up on this issue. Instead of whining about how bad free trade is, why not get off your a**es and start some kind of import/export businesses and benefit from all of this?

When the world give you lemons, start making lemonade.

HellKaiserRyo said at January 6, 2008 12:49 AM:

"I also think your guys' attitude is f**ked up on this issue. Instead of whining about how bad free trade is, why not get off your a**es and start some kind of import/export businesses and benefit from all of this?

When the world give you lemons, start making lemonade."

Wait, are you doing that?

Kenelm Digby said at January 6, 2008 6:37 AM:

IN my humble opinion, everyone here is chasing the wrong fox.
At root, the economic disparities in growth and dynamism between the American and Chinese economies are not down to 'market orthodoxy' or 'economic theorizing', but something far more basic and powerful - that has existed millenia before the first caveman ever swapped the first knapped flint in exchange for a wife ie genetics.
'IQ and the Wealth of Nations' by Lynn and Vanhannen explores this topic fully.

Kenelm Digby said at January 6, 2008 6:46 AM:

Kurt9,
Despite all your bluster, the fact is that Japan bankrolls America - through huge transfers of cash used to buy up assets, and without this cash-flow recycling, America would be even further down on its knees.
Also, I believe we've now passed the point where China is the stronger partner in the US/China bilateral trade relationship ie China (which does more trade with Japan than with the USA)stands to lose least if by some miracle a full trade embargo was imposed.
America, you see, cannot survive without that cash-flow passing under the Pacific Ocean.
Of course, a mere ten years ago the tables were turned and China needed America more than America needed China, but now, alas, you are only seeing the beginning of an irreversible change in 'who's boss'.

tommy said at January 6, 2008 8:08 AM:
Despite all your bluster, the fact is that Japan bankrolls America - through huge transfers of cash used to buy up assets, and without this cash-flow recycling, America would be even further down on its knees.

Oh, come now! You hadn't noticed that Americans have stopped driving Subarus and Toyotas while the Japanese can't get enough of our Fords and Chevies? American automobile companies have never been in better financial shape while sluggish, overprotected Japanese manufacturers are on their knees.

We sure licked them in the trade wars! Stupid Japanese protectionists! ;-)

Randall Parker said at January 6, 2008 11:54 AM:

Kurt,

You are in error on a few counts here:

I do not care if the Chinese manipulate their currency. However, I care very much when our FED manipulates the value of our currency for political purposes (as it has done since 1993). The FED, under Greenspan, created two artificial bubbles (equities in the late 90's and housing during the past 5 years) for no apparent reason other than it was politically convenient for Greenspan to do so. The marketplace distortions resulting from these two bubbles will take years to overcome.

1) When the Chinese manipulate the Renminbi they manipulate the dollar. They manipulate the buying power of the dollar.

2) The Chinese currency manipulation is supported by large scale Chinese purchases of US Treasury bonds. This expands the US money supply while hiding the inflationary effects which get transported to the future. The Chinese now hold these bonds which they can sell and use to buy US assets to drive up prices later.

3) The housing bubble was caused in large part by Chinese bond purchases. This lowered mortgage rates and made real estate artificially cheaper in monthly mortgage payments.

4) Basically the Chinese caused an asset price inflation in the US while suppressing a consumer goods price inflation.

Yet you are more upset with what the US government does. I think you have just not thought it thru. Time to start now. We do not have free trade. We have manipulated trade. The Chinese and Japanese have manipulated currency markets and money supplies and interest rates and in the process they have caused large scale macroeconomic maladjustments and displacements.

Ned said at January 6, 2008 3:39 PM:

"We need trade without tradeoffs for America," former Sen. John Edwards, D-N.C., said in a speech at an Iowa union hall on Aug. 6. He vows, if elected, to put "regular families" ahead of the interests of multinational corporations.

John Edwards voted for MFN status for China when he was in the Senate. How's that for the old switcheroo?

kurt9 said at January 6, 2008 5:01 PM:

Randall,

I think you guys are being somewhat paranoid.

Over the past 20 years, incomes are up for most people. Have a look at the following:

http://advancednano.blogspot.com/2008/01/people-in-us-moving-beyond-middle-class.html


Post a comment
Comments:
Name (not anon or anonymous):
Email Address:
URL:
Remember info?

      
 
Web parapundit.com
Go Read More Posts On ParaPundit
Site Traffic Info
The contents of this site are copyright ©