Magazine | October 10, 2016, Issue


Trade or the Trade Establishment?

Robert D. Atkinson’s “Four Myths about Trade” (September 12) are almost correctly stated; which is to say, incorrectly stated.

“The first assumption is that America is the world’s economic leader because it is the most open, entrepreneurial, and market-driven economy.” Mr. Atkinson’s evidence against this “assumption” (which is really a conclusion) is weak. While “other countries [are at least equal] in numerous areas” and “the United States runs [a colossal] trade deficit,” both were also true during America’s fastest growth period (between the Civil War and World War I). America’s economic jinx since then hasn’t been trade.

“The Washington trade establishment’s second core belief is that trade is an unalloyed good, even if other nations engage in mercantilism.” I defy Mr. Atkinson to find a single non-ironic affirmation of “unalloyed good,” as opposed to “good on the whole.” Otherwise he correctly characterizes economics since Adam Smith. If Mr. Atkinson disagrees, whence derives his view that “reciprocal free trade is the optimal condition?”

Mr. Atkinson thinks China proves that mercantilism works in that China has been able to “leap ahead.” Even if we stipulate the leap, something other than mercantilism has happened at the same time. The Chinese economy has become less Communist, while ours has become less free.

Third, “the theory [of comparative advantage] holds that nations have natural advantages in certain goods . . . and each does better when it specializes in those industries.” Not quite. Goods’ relative prices differ between trading countries, or there would be no trade. There is nothing “natural,” essential, or permanent about the comparative advantage. Specialization is economic; it would retard but not necessarily prevent a reversal.

Fourth “tenet”: “Because the United States leads the global economy, because mercantilists hurt only themselves, and because our current industrial structure is optimal or close to it, the economy as a whole must benefit from trade even though some individuals may be hurt.” Again, Mr. Atkinson restates economic orthodoxy, almost. 1) “The economy” would not benefit: Only people can benefit. 2) The benefit does not depend on whether the United States “leads” the global economy. 3) The statement is true even though mercantilists do not hurt only themselves. 4) There is no agreed meaning of “industrial structure” for a whole economy, still less what it would mean for it to be optimal. Nobody claims that “our current industrial structure is optimal or close to it.” 5) So a better restatement would be: “Trade benefits our people on the whole.”

Roberto Alazar

Via e-mail

Robert D. Atkinson: My thanks to Mr. Alazar for his letter. The letter focuses on semantic quibbles (e.g., “people” vs. “economy”) and appears to misunderstand my argument. I am arguing less about the validity of neoclassical trade theory and more about shortcomings in the beliefs of the Washington trade establishment. My source of “data” for this is more than 25 years of personal interaction with its members and of reading their views. Regarding Adam Smith — who is always brought up in the debate over trade as if one were quoting scripture — a close read of The Wealth of Nations shows that Smith believed that under some conditions foreign mercantilism could hurt the British economy. I wonder if Mr. Alazar really believes that we should not bother to enforce the WTO rules. Since when did defenders of the free market come to believe that government economic distortion is bad here at home but okay from our trading partners? If free-market conservatives are to be intellectually consistent, they need to press for free markets both at home and abroad and acknowledge that distortions hurt U.S. firms, regardless of whether the U.S. or a foreign government imposes them.

NR Editors includes members of the editorial staff of the National Review magazine and website.

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