As the incoming Obama administration examines various bailout proposals and stimulus plans to lift the American and global economies, the crucial role of international trade must be addressed. Many of President Obama's supporters, as well as America's trading partners, are looking for an early signal that the forty-fourth president of the United States will eschew protectionist policies that would roll back the trade liberalization achieved during the last several decades. The new administration may have other fish to fry, but this is important and should be near the top of the agenda. Any indication that we will back away from free trade during the Obama administration would send precisely the wrong message to sensitive global markets.
Concern stemming from the negative Democratic campaign rhetoric on the North American Free Trade Agreement (NAFTA) and other pending free trade agreements is counterbalanced by the selection as chief of staff of Rahm Emanuel, who has demonstrated a strong grasp of the benefits of free trade. A short statement from Obama expressing the importance of free trade and of ensuring that we as a society broadly secure its benefits and protect vulnerable workers from economic shifts could go a long way toward assuaging doubts domestically and abroad. Perhaps this could be coupled with a statement of support for the G-20's pledge in Washington in November not to erect trade barriers for at least a year.
Each day, as the current financial crisis unfolds, one reads comparisons to the Great Depression and the role of U.S. protectionism--primarily the notorious Smoot-Hawley Tariff Act of 1930, which hiked duties on imports into the United States and contributed greatly to the economic misery of that era. The lessons of Smoot-Hawley make it easy enough to advocate maintaining free trade.
But we must go further. We must recognize our challenge as a nation. It turns out that "comparative advantage" is lovely in theory, but ugly in application. The concept of "free trade" has lost its cachet; it has been tarnished. Free trade may float all boats, but within each boat, some are in first class, some are in steerage, and some are bailing. The general social benefits trade provides are offset in part by the concentrated harms it visits on certain sectors or populations. And the concentrated, tangible harms seem in our public debates often to outweigh the general, more widespread benefits.
The vast majority of economists reject protectionism, but when it comes to helping workers dislocated by trade liberalization, the labor unions are spot on. We must do more--as a practical political matter and out of fairness--to help these workers.
Our policies must recognize both the benefits and the costs of free trade. We must embrace free trade and, at the same time, as a matter of smart politics in a time of economic trouble, work to avoid or at least ameliorate unacceptable social costs, whether to the environment or to discrete groups of workers. The few should not have to pay so dearly for broad benefits to the many.
The World Trade Organization (WTO) presents an opportunity not only to reaffirm our commitment to the international trading system that we (primarily) designed and built, but also to reaffirm our commitment to international institutions and the give and take required to participate in them effectively. But, for now, only a low level of activity is required, as there is little that any U.S...