The Economic Case for Free Trade Is Stronger Than Ever: BUT WORKING-CLASS IDENTITY POLITICS THREATEN TO RUIN EVERYTHING.

Author:Drezner, Daniel W.
 
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THIS IS A cultural issue as much as an economic issue," explained Chris Matthews on MSNBC's Morning Joe in March.

Matthews and I had been invited to discuss Donald Trump's punishing new tariffs on imported steel and aluminum, a policy Matthews was convinced would resonate with "the retired person in Pennsylvania." After Joe Scarborough teasingly introduced me as a "sophisticate from Boston," one of those guys who has "never done work with their hands," I argued that this was "dumbass economics"--Trump's tariffs will be terrible for Americans, low-skilled workers very much included. Asked to respond, commentator Mike Barnicle acknowledged that I had all the facts on my side but concluded that "loss is the key, and loss triumphs over facts... loss is emotion, loss is nostalgia, and loss sends people to the polls."

And that is where we are. The case for protectionism is weaker than at any moment in this century. Neither the Trump administration nor its supporters have any valid economic or national security reason for these tariffs, and even tariff supporters admit it. Still, actual trade policy will get worse in the short run. The current schism on the issue has little to do with economics and everything to do with identity, and the metamorphosis of this debate spells trouble for defenders of the open global economy.

THE ECONOMIC ARGUMENTS in favor of freer trade are pretty darn strong. Free trade permits each economy to focus on its comparative advantage, thereby increasing the productivity of all countries. Expanding the size of the market incentivizes greater economies of scale and technological innovation. Globalization also widens the variety of goods that are available to the ordinary consumer. The Peterson Institute for International Economics estimates that the U.S. economy benefits to the tune of $2.1 trillion every year from trade expansion. (The political arguments--you know, how greater interdependence tends to tamp down the likelihood of war--ain't beanbag either.)

That Peterson Institute analysis also notes, however, that "expanded trade results in losers as well as winners, and losers are seldom compensated." And this leads us to an uncomfortable fact: The economic case for free trade in America has taken some serious intellectual hits over the past decade.

Paper after paper has been written about the "China shock"--the effect of China's integration into the global economy on the developed world. Before China, when developing countries such as Mexico or South Korea joined the global trading system, there was minimal disruption. None of those countries were all that big. China is, and its membership in the World Trade Organization (WTO) had big effects.

Consistent with longstanding economic theory, China's liberalization benefitted capital and hurt labor in the developed world, as Chinese workers suddenly became available as substitutes for union workers in, say, Scranton. Labor economist David Autor and others have found that local labor markets more exposed to Chinese imports experienced "increased unemployment, decreased labor-force...

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