An Economist Argues the Virtues of Free Trade

BY Paul Solman  November 1, 2012 at 10:14 AM EST


Photo by PublicAffairs Publishing.

On Oct.16, 2012, the NewsHour interviewed Donald Bartlett and James Steele on their latest book, “The Betrayal of the American Dream”.

Here is a critique and question from viewer Gary Todd about this segment, which you can watch below, along with a response from trade economist Robert Lawrence.


Gary Todd: Enjoyed and troubled by “What Happens to a Dream ‘Betrayed?’.” Excellent distillation of one of the authors’ general arguments in the book.

However, I feel that the piece came off a little bit as, “Here’s an argument against free trade: watch the (smug and dismissive) economic expert shoot it down.” Probably my own biases at work a bit there.

One thing I would like to have seen is an economic expert who would take the criticisms of the book seriously. After all, the authors spend a chapter in the book documenting how, for the past 30-odd years, the laws concerning free trade — and the ideology behind it — have coincided with the loss of, not only manufacturing jobs, but also with the continuing erosion of the middle class in this country.

The economist did admit that more needed to be done to open up foreign markets, but warned of dire consequences if any steps were taken to impose tariffs on foreign goods: Trade war! Protectionism!

But again, this ignores many of the arguments of the book, that many of our trading partners are already engaging in protectionism for the benefit of their own workers and country.

Is the United States above such conduct? If so, it’s a bitter pill for the decreasing American middle class to swallow: an economic ideology that puts free trade above the interests of our own people. The economist would probably argue that free trade helps the United States and its workers, but Barlett and Steele illustrate example after example in which this seems not to be the case. Hope to see more soon!

Paul Solman: The economist, Robert Z. Lawrence of Harvard’s Kennedy School of Government, may have been dismissive, but he is not smug. “Impassioned” might be more like it. As one of the world’s foremost trade economists, he has long and vigorously argued that trade is preferable to protectionism designed to restrain it.

Indeed, most economists believe this. I once met Milton Friedman, the famous conservative economist, at an economics convention and he immediately berated me and the NewsHour for presenting free trade debates even-handedly.

“Nine of 10 economists here would support trade; at most one would not,” he said, or words to that effect. I mainly remember that he was surprisingly short and commensurately tempered.

I explained that the confraternity of economists did not represent the distribution of opinion on trade and we left it there.

And that’s why we interviewed Barlett and Steele: theirs is a widely held point of view. We presented Professor Lawrence in the same spirit of even-handedness to which we always pay tribute. But in order to hear more of the authors, we heard little from him. Perhaps too little — especially if it made him seem smug.

So, to make the fight a bit fairer, and perhaps appease the ghost of Professor Friedman, here’s a little more of what Professor Lawrence had to say:

“Trade allows countries to specialize in the things they do well. And it provides benefits because it leads to cheaper products. It leads to greater product choice. It improves technology and it gives us greater choice and variety. So it raises our living standards.

“There’s no question we have been losing manufacturing jobs, but the role of trade is nowhere near as important as people think. The fundamental reason we’re losing jobs in manufacturing is the same as the reason we lost it in agriculture. We became more productive at producing food. In fact, we feed a lot of the rest of the world, but we’ve seen the share of employment in farming decline dramatically. The same is happening in manufacturing. Automation has made us much more productive. Other advances in technology have made us more productive. The productivity has led to lower prices, so we spend more of our money on services.

“Go back to 1950 and what you’ll see is that ever since then the share of manufacturing employment has been declining. This is long before America was an open economy engaging in international trade. Go and look at what’s happened to the share of manufacturing jobs all around the world in industrial countries and you’ll see that the decline is just about the same as in the United States.

“Look, trade is give and take. But if you actually look at what’s been happening to the services jobs that are being created as a result of trade, you’ll see that over the last two years our surplus in international trade in services has been growing considerably. So while some Americans are feeling more competition, other Americans have increased their export of services. We are basically a service economy.

“We definitely have an interest in getting other countries to open their markets to our exports and for that reason we need to be negotiating hard and we need to be signing more trade agreements. But the idea that we should put tariffs on imports is going to be counterproductive. We did well, after the crash of ’08, in avoiding what we did in the 1930s with the Smoot Hawley tariffs. That’s a great way to set off a big trade war in which we’re all going to be losers.

“Although most economists believe that the nation as a whole will benefit from trade, it is incorrect to claim, as Barnett and Steele do, that economists believe that everyone must gain in the long run. Indeed, trade theory tells us that even in the long run, some people could be worse off. In this respect, trade is similar to technology. Overall, in the long run, we would be better off if our cars could use water instead of oil for fuel, but such an invention would do permanent damage to oil producers.”

We at Making Sen$e are working on a story to explain where the monthly unemployment numbers come from. To do so, we are looking for interviewees who have worked on the Current Population Survey (CPS; household survey) and/or the Current Employment Statistics survey (CES; establishment survey). Are you a former surveyor? Do you know one? If so, we want to hear from you! Please email us at businessdesk@newshour.org. Be sure to include your contact information. Very much obliged.

As usual, look for a second post early this afternoon. But please don’t blame us if events or technology make that impossible. Meanwhile, let it be known that this entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.