Dems and Free-Trade

Everyone knows the debate by now. Economists argue that protectionism leads to inefficiencies (dead weight loss) and that the world is better-off if we can all specialize in what we do best. The protectionist argument is usually more varied and lengthy: they point out that America's middle class jobs are going overseas, that we import vastly more than we export ( 10.5% of GDP vs. 16.2% of GDP last year), that China is competing unfairly by depressing the value of its currency and that we need to erect barriers to protect our industries from unfair competition.

Kevin Drum hits most of my points on this issue:

Protectionism would be a disaster for both the United States and for the world's developing countries. Democrats should resist falling into that trap. At the same time, everyone knows that it's the well-off who mostly get the benefits from these deals while the working schmoes mostly take the lumps - with the constantly promised help for the losers never seeming to arrive. With that in mind, I imagine trade is going to be a hotter topic of conversation over the next couple of years than it has been recently, and I hope that Democrats can figure out some way to embrace trade while also doing something concrete to force the winners to share the gains with the losers. (And not just the "retraining" mantra, please. I've got nothing against training and education, but it's wholly inadequate as a complete solution. We need a lot more than just that.)

A more progressive tax system would be a good start to offsetting this inequality. I would also add that Americans consume too much (don't save enough) and that addressing this issue is fundamental to both the trade debate as well as America's long term economic viability.

In the short run, the democrats would gain much more politically by pushing at least a mild protectionist policy; I hope they don't fall into that populist trap.

Posted by Peter