Free Trade Under Attack

It is not yet on line, but those of us who get the dead-trees version of Atlantic Monthly can read an article by Eamonn Fingleton that attacks free trade. Fingleton says that he surveyed the ten most recent Nobel Prize winners in economics to ask whether we should be concerned about the large U.S. trade deficit.

Only one laureate, Gary Becker, of the University of Chicago, was prepared to endorse the...view that deficits pose no policy problem for the United States. Robert Solow, of MIT, said that deficits do pose a problem; Daniel McFadden, of the University of California at Berkeley, was less worried about the short term than the long term. Although the other seven were unwilling to comment publicly, several of them were clearly discomfited by the worsening trend in trade.

Fingleton attempts to imply from his "survey" that apart from Becker, economists agree with his view that trade deficits "displace American jobs." However, almost no respected economist would agree, and in fact recent economic performance in the United States clearly refutes the notion that a trade deficit leads to a net loss of employment.

The consensus among economists in favor of free trade remains strong. However, the political consensus is fragile. President Bush this week imposed tariffs on steel imports. This will cost jobs by making the U.S. economy less productive. It also sets a terrible example: if a popular President of the world's richest nation cannot resist special interest groups, we can expect very little from leaders of other countries.

Discussion Question. Economists view the U.S. trade deficit as a result of strong demand for U.S. assets, which raises the value of the dollar. If the dollar is over-valued, what risks does that pose?