Free trade and protectionism: the same old arguments

 

The Free Trade Hall, Manchester: built on land donated by Richard Cobden to celebrate the repeal of the Corn Laws in 1846. Today, the building is just a shell: the interior was gutted and replaced by a hotel between 1997 and 2004. It remains perhaps a symbol of the UK's attitude to free trade. [Image by Bernt Rostad, CC BY 2.0] 

Martin Wolf, the FT columnist whose writing is always worth reading, had an article this week under the strident heading “Spurn the false promise of protectionism” (FT 16 June 2021). 

I’m not suggesting I can write a definitive piece about protectionism in a few hundred words. But I can at least ask a few questions in response to some of the current opinion pieces.

The standard view of economists is pretty straightforward on this one: free trade is a good thing, and protectionism is bad. Here is Samuelson, the standard textbook on economics, 19th edition: 

Economists generally believe that free trade promotes a mutually beneficial division of labor among nations; free and open trade allows each nation to expand its production and consumption possibilities, raising the world’s living standard. (Samuelson and Nordhaus, Economics, 19th edition, 2010, p349) 

Martin Wolf largely endorses this view, bringing in the heavy guns of Anne Krueger and Adam Posen to justify his view. Wolf quotes Krueger as stating “trade has been the handmaid of economic growth, across the world, since the second world war.” And it is certainly true that the protectionism celebrated and endorsed by Trump has been continued by Biden – no reversal of policy there. 

But from my position as a innocent bystander, as it were, between the politicians, who see protectionism as politically expedient, and the economists, who are largely for free trade, is there any centre ground? 

Firstly, there are economist who disagree with the whole “comparative advantage” argument – that each state should stick to what they do well. That means that Colombia should stick to producing coffee, while the US sells it high-tech products. Ha-Joon Chang, for example, in his 23 Things they don’t tell you about Capitalism (2011), links protectionism with immigration policy – many manufacturing jobs in Europe and the US could be done much more cheaply if more immigration were allowed. His level of argument is considerably more sophisticated than the standard economics writers. It appears to me that not much has changed in most economists’ thinking since I was learning about economics in the 1990s.   

Secondly, there are whole areas of the economy where the continuance of protectionism is not questioned. When the UK left the EU, there was no question, once the Common Agricultural Policy was no longer mandatory, of abandoning subsidies to UK farmers. But why are farmers subsidised? It seems a reasonable enough question. And why is manufacturing subsidised, when it represents such a low proportion of GDP in a country such as the UK? There is no mention of agriculture by Wolf or by Posen (I haven’t yet checked in Krueger). 

Thirdly, I don’t believe the economists themselves are serious about ignoring the consequences of free trade in terms of closed factories, especially in deprived areas such as the North of England and states such as Ohio and Michigan in the US. Posen states, in the article praised by Wolf: 

there are precious few examples of a government successfully reviving a community suffering from industrial decline. Geography is not destiny, but it is the embodiment of economic history in many ways, and accumulated history is difficult to overcome. 

Yes, workers in a town with closed factories are largely white and male, but does that mean, as Posen seems to imply, there is nothing to be done? That regional policy is a waste? 

Finally, I thought that economic historians showed many years ago that free trade tends to be adopted by nations when it suits them. In the 19th century, Britain was only too happy to have free trade while its manufacturing costs were (briefly) lower than those of any other nation. It was a competition with only one winner. 

It seems to me that the economists and politicians argue past each other, without any real engagement. It doesn’t seem unreasonable to ask for a higher level of engagement between politics and economics. Articles such as this one by Wolf are unlikely to result in any policy change in the UK or the US – so why write them?