Tuesday, December 4, 2007

Hillary Pilloried on Trade

The editorial pages of both the Financial Times and the Washington Post went after Hillary Clinton for her views on trade yesterday, but several economists have made counter-arguments.

In an interview with the FT, she said:
Well what I have called for is a time-out which is really a review of existing trade agreements and where they are benefiting our workers and our economy and where the provision should be strengthened to benefit the rising standards of living across the world and I also want to have a more comprehensive and thoughtful trade policy for the 21st century. There is nothing protectionist about this. It is a responsible course. The alternative is simply to pick up where President Bush left off and that’s not an option...

...So it’s not that we’re starting on some totally different approach to trade it’s that we have to take stock of where we are today. And specifically with Doha and with these large global agreements, again we have to see what works and what doesn’t work. We have benefited through most of the 20th century from trade. It has helped to raise American standards of living, it has helped to create jobs. And I agree with Paul Samuelson, the very famous economist, who has recently spoken and written about how comparative advantage as it is classically understood may not be descriptive of the 21st century economy in which we find ourselves.

We know for sure that every other country wants access to our markets, because we have high levels of consumer spending since we don’t save anything in America and we have a very vigorous competitive market that is a real prize. On the other hand I want to see living standards improve around the world. I want to see environmental standards improve. And I am concerned by some of the provisions that would prevent countries from for example enforcing stronger environmental and worker safety rules under the WTO. I think we have to take a hard look at this and do it in the right way and that is what I am proposing to do.

On its editorial page, the FT says "Hillary Clinton is Wrong on Trade," FT columnist Clive Crook is critical, and FT blogger Willem Buiter says her invocation of Paul Samuelson* is "complete codswollop." I'm not fluent in British, but I think that's pretty bad. Perhaps she'll think twice next time the FT calls asking for an interview... However, Dani Rodrik finds her views "generally sensible."

Meanwhile, in Washington... a Post editorial slams Clinton (and Edwards and Obama) for criticizing NAFTA on the stump:
Polls show that many Democratic voters are nervous about the potential impact of globalization on their job security. So some Democratic candidates are competing to validate every trade-related anxiety and grievance, no matter how far-fetched. The campaign is turning into a contest to see who can make the most extreme denunciation of the nearly 14-year-old North American Free Trade Agreement.
The editorial is headlined "Trade Distortions," but Dean Baker points out (and Krugman agrees) the biggest distortion may be the Post's use of nominal, rather than real, GDP figures to give readers an inflated picture of Mexico's GDP growth since NAFTA went into effect. That's either intellectually dishonest or economically illiterate.

*Samuelson is one of the founding fathers of neoclassical trade theory. He published a controversial paper in the Journal of Economic Perspectives in 2004 which raised questions about free trade dogma, though not quite in the way Clinton suggests (probably she's too busy campaigning to study for the Econ 441 exam).

Update (12/4): Mankiw on Samuelson's paper.

Update 2 (12/6): Dani Rodrik is critical of Clinton's critics:

Here is what I do not understand. Why is it that anyone who says that the gains from the next trade agreement are not huge, that there are real social and distributional issues we need to confront before we strike the next trade deal, and that perhaps we need to rethink the basis of the multilateral trade regime in light of the severe legitimacy problems which it has run into--all true propositions--is immediately branded as a protectionist who wants to set the clock back?
Update 3 (12/7): Clive Crook replies to Rodrik's response:
Acknowledge and respond to legitimate doubts about the virtues of liberal trade. But where the fears are exaggerated or wrong, our political leaders should say so. Unlike Dani, I think it is very dangerous to concede this intellectual ground. Once the US decides that liberal trade does not serve its collective interest--and Hillary, in effect, is proposing a time-out to think about this--the openness we have is indeed at risk.

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