Mankiw on Democratic Fair-Trade

A lot of politicians are railing against outsourcing and the china factor, which they claim is squeezing the middle class. Some see this as a reason for isolationism or, more commonly, a reason for only trading with countries who also open up trade to the US. This is described as another version of fair-trade, although third-world coffee growers have rights to the original.

Greg Mankiw grabs on to some rhetoric from Lamont's website (The man who just beat Lieberman in the primary) and worries about the future of America's economy if Democrats gain power. Here's what Lamont's website says:

Connecticut has lost 75,000 manufacturing jobs in the last six years, many replaced by retail and service jobs which pay less and have reduced healthcare and pension benefits. Today, the middle class is getting squeezed and most people living in poverty or near poverty are employed but not earning enough to get by. Many of our high-skill jobs are being sent overseas, drawn by low wages and no benefits.

I support strictly-enforced fair trade policies which level the playing field, requiring that American products have the same access to Chinese markets that Chinese products have to American markets. I would support only reciprocal trade agreements which include strong labor and environmental standards.

Here's what Greg has to say about it"

So Lamont seems to think the U.S. economy is suffering and the primary reason is competition from poor workers in China.
This rhetoric scares me. Wages, benefits, and labor and environmental standards are primarily a function of the level of economic development. Complaining about poor countries low wages and benefits is essentially blaming the poor for being poor.

Greg misses the point. Lamont's statement isn't about the economy in general, it's about middle class jobs. America's middle class is hemoraging. Free trade is important for economic growth, but you can't ignore class differences. Economists know that free trade tells you nothing about the distribution of benefits. Theoretically, and usually in practice, free trade makes the entire economic pie of a country bigger, but it makes life worse for those who lose their jobs.

In America, middle class jobs are going overseas and the wage gap between educated and uneducated workers is growing. The government needs to support educating the poor more than it does bombing Iraq, but we also need to give the middle class a break. If you could outsource Harvard teaching posts, I'm sure Greg would be more sympathetic.

"Requiring that American products have the same access to Chinese markets that Chinese products have to American markets," is a tactic the US has used to increase Free Trade around the World. I agree with Greg that promoting labor and environmental laws in China is like pissing in the wind, but Lamont's objective is right: helping those who are hurt for reasons outside of their control.