"America Needs to Make a New Case for Trade"

Larry Summers says that if we want people to support free trade, we are going to have to explain why it is in their interests to do so:

America needs to make a new case for trade, by Lawrence Summers, Commentary, Financial Times: ...Since the end of the second world war, American economic policy has supported an integrated global economy, stimulating development in poor countries... Yet America’s commitment to internationalist economic policy is ever more in doubt. ...

To [the trade sceptic] the conventional wisdom has a well developed response, with four standard elements. First, the sceptic ... is educated around the many benefits of trade, not just for exporters but also for consumers and the economy more generally.

Second, the sceptic is assured that ... trade ... is not just good classical economics that reaps the gains available from comparative advantage – it is also good mercantilism. This is because the US already has low trade barriers, which it will typically not need to reduce as much as its trading partner. Sometimes the argument is added that we are in competition with other major economic powers and will be at a disadvantage if a developing country has a free-trade agreement with them but not us.

Third, the sceptic is also told that most of the observed increases in income inequality in the American economy are due to new technology rather than increased trade...

Fourth, it is acknowledged that while trade agreements are good for the economy overall, not everyone wins. And so it is increasingly recognised that they must be complemented by more ambitious efforts to reduce income inequality and income insecurity. ...

All of these points have the very considerable virtue of being correct economic arguments. Taken together, they make a compelling case...

But I suspect that the policy debate ... will need to confront a deeper and broader issue: the gnawing suspicion of many that the very object of internationalist economic policy – the growing prosperity of the global economy – may not be in their interests. ...

When other countries develop, American producers benefit from having larger markets to sell into but are challenged by more formidable competition. Which effect predominates cannot be judged a priori. But there are reasons to think that economic success abroad will be more problematic for American workers in the future.

First, developing countries increasingly export goods ... that the US produces on a significant scale, putting pressure on wages. ... Second, the growth of countries such as China raises competition for energy and environmental resources, raising the price for Americans.

Third and most fundamentally, growth in the global economy encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered. ...

Even as globalisation increases inequality and insecurity, it is constantly and often legitimately invoked as an argument against the viability of progressive taxation, support for labour unions, strong regulation and substantial production of public goods that mitigate its adverse impacts.

In a world where Americans can legitimately doubt whether the success of the global economy is good for them, it will be increasingly difficult to mobilise support for economic internationalism. The focus must shift ... to designing an internationalism that more successfully aligns the interests of working people and the middle class in rich countries...