Economy

Paul Krugman Dissects the Real Problem With Trade Deals

Being a demagogue on the issue is not going to solve it.

Photo Credit: via YouTube/Moyers & Co.

The issue of international trade has come front and center in the presidential election in both the Republican and Democratic primaries. As he notes, some have speculated that Bernie Sanders' win over Hillary Clinton in Michigan might have had something to do with his opposition to trade agreements. Donald Trump has made the unfairness of our international trade agreements a centerpiece of his campaign, when he isn't railing against immigrants and threatening war crimes against Muslim nations.

Whatever the truth is about the international trade situation, Krugman is pretty sure that Mitt Romney’s claim that protectionism causes recessions is nonsense, but no one seemed to pay much attention to Romney anyway.

Krugman gives a little background on he issue as he sees it:

The first is that we have gotten to where we are — a largely free-trade world — through a generations-long process of international diplomacy, going all the way back to F.D.R. This process combines a series of quid pro quos — I’ll open my markets if you open yours — with rules to prevent backsliding.

The second is that protectionists almost always exaggerate the adverse effects of trade liberalization. Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. Trade deficits have been an important cause of the decline in U.S. manufacturing employment since 2000, but that decline began much earlier. And even our trade deficits are mainly a result of factors other than trade policy, like a strong dollar buoyed by global capital looking for a safe haven.

After criticizing Romney's and other over-the-top free traders (and also criticizing Sanders for what Krugman calls "demagoguing" against free trade, Krugman comes to this assessment:

In general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle the overall gains mean that the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.

Which leaves him to explain why we have trade deals in the first place since they don't necessarily do that much good. The answer, he says, is foreign policy. "Global trade agreements from the 1940s to the 1980s were used to bind democratic nations together during the Cold War, Nafta was used to reward and encourage Mexican reformers, and so on."

The real question, Krugman says, is what do those who oppose those deals propose doing now. His fear is that scuttling them would jeopardize our standing in the world. He worries about the impact that would have on efforts to create international agreements on things like addressing climate change.

On the other hand, the Trans-Pacific Partnership has not even been approved. Krugman agrees with most progressives here. That one can be ripped up without hurting international relations no matter what its proponents like Obama say.