Straight Talk on Trade: Ideas for a Sane World Economy
by Dani Rodrik
Princeton University Press, 331 pp.
Two decades ago, the Harvard political economist Dani Rodrik wrote a book, Has Globalization Gone Too Far?, in which he argued that global trade was creating dangerous fissures in developed nations between the better educated, who prosper under the new regimes, and the less educated, who do not. If not addressed, he warned, these fissures could lead to "social disintegration." As is customary, Rodrik requested an endorsement for the book's back cover from a well-known fellow economist. This person declined the request, not because of significant disagreement with the book's analysis, but because he was worried that Rodrik's book might "provide ammunition for the barbarians"--that is, protectionists, mercantilists, and other enemies of free trade.
Now, with the barbarians at least partway through the gates and in the act of taking over the helm of government, Rodrik has published another hard-hitting book, Straight Talk on Trade. In it, he relates the story above and blames his fellow professional economists for giving the barbarians their opening. He also predicts worse to come at both national and international levels if the professoriate doesn't start playing straight with the masses. In public, the economists have stubbornly stuck to a theory of free trade and globalization, which holds that free trade (even if practiced unilaterally--meaning that I reduce tariffs to zero even if my trading partners don't) is always and everywhere a win-win proposition.
Among themselves, however, economists admit that the theory is full of questionable assumptions and contingent conclusions and is not only a cause of growing income inequality and middle-class anxiety in many countries, but also the stimulator of rising international disharmony and of potential outright conflict. Yet they have persisted in publicly discounting the domestic costs of free trade, and wildly overestimating the gains, in the face of mounting evidence that this consensus view is wrong.
When the North American Free Trade Agreement was being debated during the 1992 presidential campaign, candidate Ross Perot predicted that it would result in a "giant sucking sound" as jobs left the United States. Economists blasted Perot and asserted that the deal would, instead, generate rising American trade surpluses and thousands of new jobs. When the U.S. agreed to admit China to the World Trade Organization in 2001, economists foresaw a sharp decline in the $80 billion U.S. trade deficit with China. In the case of the U.S.-Korea Free Trade Agreement of 2007, economists predicted a dramatic decline in the $17 billion U.S. trade deficit with Korea as notorious Korean tariffs and trade barriers were removed.
In all of these cases, the facts turned out to be the complete opposite of the predictions. U.S. trade with Mexico went from a surplus to a $50 billion deficit. In the case of China, the deficit rose to over $400 billion. Rather than falling, the deficit with Korea about doubled. More importantly, Perot's prediction turned out to be right. There was, in fact, a giant sucking sound--later confirmed by...