The following is an excerpt from MARK THOMA | October 22, 2012 | Thefiscaltimes.com |
The second presidential debate featured Mitt Romney and Barack Obama going nose to nose over who would be tougher on China and other countries over their unfair trade practices. But by adopting a narrative that places the blame for our problems on other countries, President Obama is playing into the hands of those who’d like to make significant cuts to social insurance programs that protect working class households.
For the most part, the response of economists to the candidates’ exchange over trade was highly negative. Economists are strong advocates of open, unimpeded trade between nations, and with all that economists have done to promote the idea that specialization and trade is mutually beneficial – an argument with the public that has persisted for hundreds of years how could the candidates regress into this primitive mercantile thinking?
But there are qualifications to the conclusion that reducing trade barriers helps everyone. Most of the exceptions are interesting theoretical curiosities that are considered unimportant for real world applications, but not all of the qualifications are so easily dismissed.
First, although it’s generally possible to make everyone better off as a result of trade, there is no guarantee that this will happen. If, for example, most of the gains from globalization flow to the top of the income distribution while most of the costs fall on working class households – costs such as jobs that move offshore and reductions in job benefits in the name of international competitiveness – then there are clear winners and losers.
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