Free Traitors

[Joanne98]

Jagdish Bhagwati is a humble man. He will tell you so himself. Describing the effect of his book In Defense of Globalization during a speech at the John Hopkins School of Advanced International Studies (SAIS) last fall, the Columbia economist politely refused credit for single-handedly dampening growing concerns about the fallout from free trade. Fears of trade are "low-key," he said. "I won't say it's because of my book. I have colleagues who would say that. ... People believe I have a large claim to fame, so I don't have to do it myself."

But, for all his bluster, Bhagwati was in something of a defensive crouch. His talk was titled "Free Trade Policy Today: Why Is the United States in Retreat?" and, although he was tempted to pin the blame on idiots in the press--he called New York Times writer Louis Uchitelle a protectionist who "never saw a tariff didn't like"--a wayward economics reporter or two could hardly explain the shift in public opinion. Although Washington's trade deal with Peru--largely modeled on the North American Free Trade Agreement (NAFTA)--managed to pass Congress in December 2007 on a bipartisan vote, many politicians have become increasingly vocal in their opposition to future deals. One need only look at the dustup that preceded the Ohio primary, in which senators Hillary Clinton and Barack Obama competed to out-anti-NAFTA each other, despite the fact that it was Clinton's husband who pushed NAFTA through a resistant Congress 15 years ago. Nor are concerns about the effects of trade agreements limited to Democrats campaigning in the hard-hit manufacturing belt. Poll after poll shows that a majority of Americans, skeptical of their benefits, oppose NAFTA-style deals. A Wall Street Journal/ NBC survey last year found that about 60 percent of Republicans believed foreign trade has been bad for the United States, up from 31 percent nine years ago.

The public's increasing wariness of trade agreements is easy enough to integrate into the narrative of eternal besiegement that free trade's advocates tend to construct. (Adam Smith's The Wealth of Nations was born, more or less, as an argument against the prevailing protectionist consensus of the day.) But what truly irritated Bhagwati was the perception that economists were rethinking the fundamentals of their pro-trade arguments. Two high-profile "defections" in particular merited Bhagwati's ire. In 2004, the father of modern trade theory, Nobel laureate Paul Samuelson, published a paper which argued that, as China developed economically--from manufacturing children's toys to, say, programming software--the net effect on the U.S. economy could be negative. Then, last year, Princeton economist (and former Federal Reserve governor and adviser to President Clinton) Alan Blinder circulated a working paper that calculated the number of U.S. jobs that could be shipped overseas. The number was headline-grabbing: 40 million.

Despite Bhagwati's assurances that these were minor blips misinterpreted by a man-bites-dog-hungry press, nearly all of the dozen or so economists I've spoken to have said that the academic conversation about trade has moved significantly. Fifteen years after NAFTA and ten years after the protests against the World Trade Organization in Seattle, economists can now look at the actual results from a host of multilateral free-trade agreements. The results do little to overthrow the basic theoretical argument about comparative advantage--economies do best when they specialize in producing the goods and services they can make most efficiently and trade for those goods outside their specialization--but they have led many economists to be far more skeptical of the actual "free trade" policies that have emerged from Washington over the last several decades. The evidence has forced academics to focus on the distribution of trade's negative effects, the role trade agreements play in rising inequality, and the failure of trade agreements to deliver the bounty of jobs their advocates predicted. The result is that, while they may still deride protectionism, laissez-faire economists who once sought to keep government from meddling in the market have begun to embrace an unlikely new partner: the welfare state.

Given how heated debates about trade have become on the political circuit, you might imagine that the academic landscape is similarly contested. But there's actually a surprising degree of consensus across ideological and methodological divides in the academy that the predictions of trade theory have been more or less borne out in the developed world: Trade agreements like NAFTA have produced concentrated pain (job losses in low-skilled industries) and diffuse gain (cheaper consumer goods), with the gains outweighing the losses. "I am actually a textbook purist on this, and I'm a lefty," says Josh Bivens, an economist at the liberal Economic Policy Institute. "The idea that trade raises total real income isn't in dispute," Princeton economist and New York Times columnist Paul Krugman wrote me in an e-mail. "But it definitely feeds inequality in rich countries, although the magnitude is in dispute."

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