Can trade make us worse off? Evidently, Nobel Laureate Paul Samuelson is going to make that claim.
Trade, in other words, may not always work to the advantage of the American economy, according to Mr. Samuelson.
In an interview last week, Mr. Samuelson said he wrote the article to "set the record straight" because "the mainstream defenses of globalization were much too simple a statement of the problem." Mr. Samuelson, who calls himself a "centrist Democrat," said his analysis did not come with a recipe of policy steps, and he emphasized that it was not meant as a justification for protectionist measures.
The authors point out that some of the concern is not about trade per se but about the accumulation of capital and know-how in China and India. They suggest that this could harm the U.S. if it reduces trade by eliminating the division of labor. That is, suppose that the U.S. stays stagnant, but China and India learn how to do everything that we know how to do. Then they will no longer export cheap goods to us, and we will lose. This, they claim, is what Samuelson's theoretical paper describes. If so, then it does not really describe outsourcing.
It sounds as though Bhagwati and company think that Samuelson's article is a bait-and-switch. The bait is outsourcing, but he then switches to a model of relative stagnation, in which the U.S. stops doing things that increase productivity while other countries rapidly increase theirs, leading to less comparative advantage and trade. If Bhagwati and company are correct, then Samuelson has done the public a disservice.
For Discussion. Under most circumstances, is the U.S. better off when productivity increases in other countries?