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Adam Smith, Binyamin Appelbaum, Donald Trump, Douglas A. Irwin, economics, economists, free trade, I.M. Destler, Jagdish Bhagwati, John Maynard Keynes, John Stuart Mill, mercantilism, protectionism, Republicans, Richard Nixon, Robert Torrens, Ronald Reagan, Smoot-Hawley Tariff, strategic trade theory, tariffs, The New York Times, Trade, {What's Left of) Our Economy
It’s easy to imagine the thought processes responsible for The New York Times running last week’s article describing Donald Trump’s views on trade policy as “Breaking with 200 Years of Economic Orthodoxy”:
“We are the newspaper of record.”
“The public needs vital context to make intelligent decisions.”
“We can flaunt our matchless knowledge of history.”
What a shame, then, that economic correspondent Binyamin Appelbaum’s piece failed so badly on so many counts.
Let’s be charitable and start off by accentuating the positive. Appelbaum deserves credit for characterizing trade concerns as “among his oldest and steadiest public positions.” That’s a healthy corrective to media-wide reporting portraying the Republican presidential front-runner as motivated solely or mainly by – nativist and even racist – hostility to immigration.
It was also encouraging that Appelbaum acknowledged (though in an excessively narrow way, as will be demonstrated below) that “economists have oversold their case.” And he helpfully quoting a leading voice in the profession as noting not only that foreign protectionist practices are all too common, but that “It might be that the threat of tariffs or other trade sanctions could cause American trading partners to open up their markets or drop their barriers to trade.”
Unfortunately, nothing else Appelbaum wrote met standards of current or historic accuracy. First, although he correctly described mercantilism’s focus on amassing trade surpluses, he never pointed to a Trump statement endorsing such a goal. Conversely, the author errs when he contends that the orthodoxy calls for maximizing international trade flows. Instead, it calls for permitting global trade to reflect patterns of comparative advantage to the greatest extent possible.
As for Appelbaum’s brief history of American trade politics, it omits crucial facts. Specifically, he quotes as gospel the view of the University of Maryland’s I.M. Destler that “For most of the last century…skepticism about trade had been relegated to the fringes of the Republican Party.” But no significant Republican shift toward trade liberalization took place until after World War II. Indeed, legislators Reed Smoot and Willis Hawley, sponsors of the 1930 tariff, were both Republicans.
And even after most of the party warmed toward freer trade positions, major tariffs were imposed in 1971 by President Richard M. Nixon and throughout the 1980s by President Ronald Reagan – hardly fringe figures.
Finally, Appelbaum also seriously distorts the economics profession’s position on trade liberalization. Why, for example, didn’t he point out that, like one of the contemporary he cited, Adam Smith himself endorsed the threat and use of tariffs to open foreign markets. He also left out all the major loopholes in standard free trade theory pointed out by some of the biggest names in economic history. This history of the idea of free trade by Dartmouth’s Douglas A. Irwin makes clear how significant they have been. Here’s a summary drawn from my (New York Times) review of Irwin’s 1996 study – which unfortunately has not been digitized:
“Robert Torrens and John Stuart Mill explained how countries could use tariffs to enhance national wealth by stimulating the production of more profitable exports. Mill showed that tariffs protecting ‘infant’ industries could help them survive competition with more established rivals and eventually become self-supporting — without exacting larger costs from that country’s consumers or other economic sectors.
“During the 1920’s, Frank Graham of Princeton theorized that tariffs could provide permanent help for national economies by encouraging a shift from agriculture into manufacturing, thereby increasing a country’s total wealth. In the wake of the Great Depression, John Maynard Keynes insisted that free trade policies could impoverish individual countries during periods of already high unemployment, deflation and fixed exchange rates, particularly when the deflation was caused by a central bank’s determination to keep interest rates up. And in the 1980’s, a school of ”strategic trade” theorists contended that the special characteristics of certain industries (particularly those dominated by a few producers) could allow governments in some instances to use export subsidies to create national advantage.”
Irwin was correct in noting that “these arguments simply represent exceptions to a still-enthroned free trade rule — not new rules themselves (my paraphrase).” But it’s also true that these exceptions are so substantial that they call the theory’s validity into question.
In fact, Columbia University economist Jagdish Bhagwati, a leading free trade champion for decades, put it best when he observed, ”One cannot assert that free trade is ‘the policy that economic theory tells us is always right’ . . . certain developments make the case for free trade more robust whereas others make it less so . . . the latter are subject to many difficulties as one passes from the classroom to the corridors of policy making.”
I suppose that Appelbaum and The Times should be praised to trying to convey the idea that a high profile current campaign issue has deep roots in the past. But is it so unreasonable to hope that they could do the story anything close to justice?
RealityChek 