I'll trade ya'

I'll apologize ahead of time. This is a boring (for some) economics rant. I know y'all don't read this blog for economic analysis, but sometimes it just comes out. It is, after all, what I do. General interest next time.

I finally have a few minutes to launch into a substantive discourse. Unfortunately, I've chosen a topic that will bore most of you to tears. Tough; it's a topic that's been on my mind of late -- the idea that we need to manage trade to make sure it's fair . What is meant by fair trade? Well that's really the crux of the problem.

Foreign Affairs just put out a special edition (web only, no subscription required) that deals with many of the current issues in international trade. Unfortunately, the essays on the main page are devoted to technical aspects of the Doha Round of WTO negotiations and nothing there approaches the simple, yet elegant, writing of David Ricardo (my favorite economist of all time). [Okay, I know it's extremely nerdy that I have a favorite economist, but that's just me.]

Fortunately, there are links on the sidebar to some other essays. Though N. Gregory Mankiw got in trouble for speaking like an economist when he was head of Bush's Council of Economic Advisers, he knows how to present an eloquent argument. In this essay he takes on the anti-dumping argument for trade restrictions:

The ostensible purpose of antidumping law is to help ensure competition by punishing foreign firms that sell their products at "unfair" [predatory] prices in U.S. markets. In practice, however, antidumping has strayed far from this purpose, becoming little more than an excuse for special interests to shield themselves from competition at the expense of both American consumers and other American companies.
...
What is especially perverse is that the impact of antidumping tariffs falls most harshly on two groups whose interests members of Congress should be working to protect: the least well-off of their constituents and the vast majority of American producers. All Americans pay higher prices for food and housing as a result of antidumping tariffs, but the burden is likely greatest on the poor, because these necessities make up a larger share of their spending. U.S. producers are affected because most items hit with antidumping tariffs are not finished goods but components that are used to make other items. Since 1989, for example, imported ball bearings have been subject to tariffs ranging above 50 percent. U.S. manufacturers of ball bearings surely benefit, but there are many more buyers of ball bearings in the United States than there are producers -- and all of them end up paying significantly more than they should and than their foreign competitors do.

While true examples of dumping (probably) need to be dealt with, Mankiw points out that today's anti-dumping statutes essentially amount to nothing more that anti-bargain.

While I recognize that many workers (in both countries) will be affected by trade, stopping the trade from happening is not the answer. Should we use some of the gains from trade to help the displaced workers? I think so, but that's a far cry from outlawing the trade because it will have a negative impact on some part of society. In economics there is always another side. Keeping prices high to help one industry hurts consumers and producers of other goods. That's why I'm amazed there are so many progressives in favor of restricting international trade.

Wonder why very little candy is produced within the U.S. anymore? It's not because of cheap labor from other countries, it's because of cheap sugar. As Daniel Drenzer has pointed out:

[D]espite the fact that 90 percent of the world's candy canes are consumed in the United States, manufacturers have sent much of their production south of the border in the past five years. The attraction of moving abroad, however, has little to do with low wages and much to do with protectionism. U.S. quotas on sugar imports have, in recent years, caused the domestic price of sugar to become 350 percent higher than world market prices. As candy makers have relocated production to countries where sugar is cheaper, between 7,500 and 10,000 workers in the Midwest have lost their jobs -- victims not of outsourcing but of the kind of protectionism called for by outsourcing's critics.

This is why I make my macro students read Bastiat's petition on unfair competition from the sun. It's a simple example of the unintended consequences of taking this argument to its logical extreme.

Okay, that's my long (trust me; it could be longer) rant on trade. We just finished discussing these issues in macro and I always get a little ginched up afterwards.