In defence of globalisation

Free trade is not without costs — but those costs are outweighed by the benefits. And where costs exist, the answer to “open” is rarely “closed”

Books

In the shape-shifting worldview of Donald Trump, an aversion to free trade has been a conviction of uncharacteristic consistency. Long before he promised to Make America Great Again and earlier even than he had uttered the words “you’re fired” on television, Trump was complaining about the supposedly disastrous consequences of trade liberalisation. “So many countries are whipping America,” he said in 1988, “making billions and stripping the United States of economic dignity. I respect the Japanese, but we have to fight back.”

These days the target is China, but the argument is unchanged. In office, Trump has kept his protectionist promises, and the results have been predictably terrible. A recent study of his trade war with China found that the tariffs imposed in 2018 by the US president were costing US companies and consumers $3 billion a month in tax alone (after all, a tariff is just another levy), as well as another $1.4 billion in deadweight losses. Add to that the harder-to-quantify indirect costs involved and you have a needless act of national self-harm.

You might have thought that attacking this failed policy would be a minimum requirement for any serious Democratic primary candidate. Not so, sadly. The only major US political figure who could be said to be a bigger trade sceptic than Trump is Bernie Sanders, one of the favourites in the (crowded and unpredictable) race for the 2020 nomination. The hard-left senator from Vermont recently attacked the president for being too soft in his renegotiation of the North American Free Trade Agreement and his campaign manager has described Trump as a “faux Bernie Sanders” on trade. Less radical Democrats have also indulged their party’s protectionists.

Hence the need for a book like Open: The Progressive Case for Free Trade, Immigration and Global Capital, in which Kimberly Clausing, an economics professor at Reed College, Oregon, “defends global economic integration . . . from a perspective that consistently prioritises the needs of American workers”.

“The substantial challenges of middle-class economic stagnation and increasing income inequality require bold, serious policy responses,” writes Clausing, “but they don’t require a retreat from globalisation.”

Let’s leave to one side the irritating need for Clausing to describe her argument as “progressive”. (Is the conservative case for globalisation not rooted in the interests of ordinary Americans too?)  Open is an even-handed, fair-minded and up-to-the-minute primer on some of today’s most important economic debates. In her consideration of who gains and who loses from economic openness, she makes a stout, evidence-led defence of the worldview disparaged as “globalism” by both the Right and the Left.

The point, Clausing argues, is not that the free(ish) movement of goods, services, labour and capital is without costs but that those costs are outweighed by the benefits. And, crucially, where costs exist, the answer to “open” is rarely “closed”. For example, it might be true that high levels of unskilled immigration make the job market tougher for high-school dropouts. But given the unavoidable realities of foreign competition and technological change, the answer to that problem lies in education and skills training, not at the border.

If, more generally, shutting America off from the world is not the answer to the problem of middle-class stagnation, then what is? Here is where Open disappoints. Clausing’s policy laundry list is supposed to add up to “a more equitable globalisation”. But there is little that binds them together. Some are sensible, such as a tax cut for lower-income workers. And who could object to a simplified tax code? Others are platitudinous, like “bringing together stakeholders in a grand bargain to reform the tax system”.

What would be welcome is a dollop of economic freedom for American workers. In a country where a quarter of workers need a state licence to do their job, up from ten per cent in 1970, and where restrictive land-use regulations prevent millions from moving to cities where the most productive and best-paid jobs are, it is reasonable to wonder whether a lack of government intervention is really the problem.

If you want to understand why the American middle class is feeling the squeeze then, instead of Open, I recommend The Captured Economy, in which the authors Steven Teles and Brink Lindsey persuasively argue that the stagnation and inequality that Clausing is rightly worried about are largely caused by state action rather than the invisible hand. As they argue, “by suppressing and misdirecting entrepreneurship and competition”, government intervention “has rendered our economy less innovative and dynamic as well as less fair”.

The case for trade, as laid out in Open, is built on the extraordinary prosperity-boosting power of free exchange between individuals and firms in different countries. What is true across borders is true within them. The sooner policymakers realise that, the sooner Americans’ economic frustrations will start to fade.

 

Open: The Progressive Case for Free Trade, Immigration and Global Capital
By Kimberly Clausing
Harvard, 360pp, £20.95