Tags
Abraham Lincoln, American history, Asia, free trade, George Washington, import substitution, investment, Mark Twain, Obama, protectionism, The Race to the Bottom, Theodore Roosevelt, Trade, Wall Street Journal, {What's Left of) Our Economy
It’s clearly time for Wall Street Journal editorial writers to start reading more Abraham Lincoln and Mark Twain – specifically the adage (attributed to both) that it’s “Better to keep your mouth shut and be thought a fool than to open it and remove all doubt.” Because the paper’s broadside on trade today makes clear its management doesn’t understand the first thing about American economic or political history, and perhaps even less about Asia.
According to the Journal, opponents of President Obama’s trade liberalization agenda “are invoking the fantasy that buying foreign goods means fewer American jobs. This has become union orthodoxy in the U.S., as it used to be in India and other places that stagnated under ‘import substitution.’ This was the dominant theory of development in the 1950s and 1960s that rejected imports in favor of domestic-made products. East Asia rejected this policy in the 1970s, and India began to do so in the 1990s, with spectacular increases in living standards.”
Even more emphatically, Journal editors conclude that “Candidates who oppose free trade don’t belong in the Oval Office.”
Here’s what these pundits don’t seem to know. First, among the “other places” that have “rejected imports in favor of domestic-made products” was the United States during the 19th century. Yes, the same 19th century during which the nation became the greatest industrial, technological and agricultural powerhouse in human history. And living standards became the envy of the world – attracting hitherto unheard of tides of immigrants.
Consequently, the Journal’s criteria for the U.S. presidency would have excluded George Washington, Lincoln, and Theodore Roosevelt, among others.
And has East Asia really rejected protectionism? Not even close. The region’s opening to trade and investment has been highly selective at best – and targeted. The region’s most successful governments have encouraged imports that build up their countries’ productive capacities (like capital goods), and discouraged purchases of foreign consumer goods. As for investment, Asian countries from China to Malaysia have attached conditions on incoming capital ranging from technology transfer to domestic content standards to requirements that certain shares of the resulting output be exported. My book The Race to the Bottom documented these policies exhaustively.
Obviously, this isn’t the 19th century, and the United States isn’t East Asia. But for interlocking reasons including the energy revolution, the immense size of its domestic market, its own recent economic out-performance, and the heavy net export dependence of most of the world’s leading trading powers, the case for a more discriminating U.S. approach to foreign trade and a greater emphasis on economic self-sufficiency remains compelling today.
Many arguments for further trade liberalization are still compelling, too. But its advocates are better advised to describe domestic and international economic history correctly, rather than traffick in myth and advertise their ignorance.
