Trade Policy and the Macroeconomy

Barry Eichengreen:

Trade Policy and the Macroeconomy, by Barry Eichengreen, IMF: It’s an honor and privilege to have been asked to deliver the Mundell-Fleming Lecture. It’s also a bit intimidating. I won’t read off the entire list of luminaries who have given this lecture. But they include our master of ceremonies and my Berkeley colleague Maury Obstfeld. They include Stanley Fischer, my boss when I worked at the IMF. And they include my oldest and closest childhood friend from the age of three. (If you don’t know who that is, you get to guess.)

My topic today is trade policy and the macroeconomy. I chose this as my topic for several reasons.

The first is, of course, Donald Trump. President Trump has controversially argued that tariffs are good for economic growth. This makes now an important time to reconsider the question.

A second reason is: Paul Ryan, or more precisely the idea of a border-adjustment tax...

Third, the framework most widely used to analyze these issues is, appropriately for this venue, the Mundell-Fleming model. ...

Fourth, the literature on this subject is importantly informed by research here at the IMF. ...

Fifth, these are issues on which historical evidence has been used to shed light. ...

Sixth and finally (perhaps I should say “sixth and self-indulgently”), this is where I came in. My Ph.D. dissertation was on the macroeconomic effects of trade restrictions...

My remarks are in three parts. First, I will consider the evidence on tariffs and growth from an historical vantage point. Next I will review what we know about trade policy and macroeconomic fluctuations. Although the first part is about growth and the second part is about fluctuations, similar issues arise in the two contexts. In concluding, I will then return to the current policy debate.

I will argue that both theory and empirics in this area have ambiguous implications. Even more than other areas of economics perhaps, conclusions are sensitive to assumptions. Theoretical results are fragile, and empirical findings are context specific. Given this uncertainty, I will argue that the best guideline for practitioners tempted to deploy trade policy for macroeconomic purposes remains Hippocrates’ dictum, “first, do no harm.” ...continue...  [conference papers]