Economists and Trump: Straight Talk on Trade

By Dani Rodrik, Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University. Originally published at Project Syndicate

Are economists partly responsible for Donald Trump’s shocking victory in the US presidential election? Even if they may not have stopped Trump, economists would have had a greater impact on the public debate had they stuck closer to their discipline’s teaching, instead of siding with globalization’s cheerleaders.

As my book Has Globalization Gone Too Far? went to press nearly two decades ago, I approached a well-known economist to ask him if he would provide an endorsement for the back cover. I claimed in the book that, in the absence of a more concerted government response, too much globalization would deepen societal cleavages, exacerbate distributional problems, and undermine domestic social bargains – arguments that have become conventional wisdom since.

The economist demurred. He said he didn’t really disagree with any of the analysis, but worried that my book would provide “ammunition for the barbarians.” Protectionists would latch on to the book’s arguments about the downsides of globalization to provide cover for their narrow, selfish agenda.

It’s a reaction I still get from my fellow economists. One of them will hesitantly raise his hand following a talk and ask: Don’t you worry that your arguments will be abused and serve the demagogues and populists you are decrying?

There is always a risk that our arguments will be hijacked in the public debate by those with whom we disagree. But I have never understood why many economists believe this implies we should skew our argument about trade in one particular direction. The implicit premise seems to be that there are barbarians on only one side of the trade debate. Apparently, those who complain about World Trade Organization rules or trade agreements are awful protectionists, while those who support them are always on the side of the angels.

In truth, many trade enthusiasts are no less motivated by their own narrow, selfish agendas. The pharmaceutical firms pursuing tougher patent rules, the banks pushing for unfettered access to foreign markets, or the multinationals seeking special arbitration tribunals have no greater regard for the public interest than the protectionists do. So when economists shade their arguments, they effectively favor one set of barbarians over another.

It has long been an unspoken rule of public engagement for economists that they should champion trade and not dwell too much on the fine print. This has produced a curious situation. The standard models of trade with which economists work typically yield sharp distributional effects: income losses by certain groups of producers or worker categories are the flip side of the “gains from trade.” And economists have long known that market failures – including poorly functioning labor markets, credit market imperfections, knowledge or environmental externalities, and monopolies – can interfere with reaping those gains.

They have also known that the economic benefits of trade agreements that reach beyond borders to shape domestic regulations – as with the tightening of patent rules or the harmonization of health and safety requirements – are fundamentally ambiguous.

Nonetheless, economists can be counted on to parrot the wonders of comparative advantage and free trade whenever trade agreements come up. They have consistently minimized distributional concerns, even though it is now clear that the distributional impact of, say, the North American Free Trade Agreement or China’s entry into the World Trade Organization were significant for the most directly affected communities in the United States. They have overstated the magnitude of aggregate gains from trade deals, though such gains have been relatively small since at least the 1990s. They have endorsed the propaganda portraying today’s trade deals as “free trade agreements,” even though Adam Smith and David Ricardo would turn over in their graves if they read the Trans-Pacific Partnership.

This reluctance to be honest about trade has cost economists their credibility with the public. Worse still, it has fed their opponents’ narrative. Economists’ failure to provide the full picture on trade, with all of the necessary distinctions and caveats, has made it easier to tar trade, often wrongly, with all sorts of ill effects.

For example, as much as trade may have contributed to rising inequality, it is only one factor contributing to that broad trend – and in all likelihood a relatively minor one, compared to technology. Had economists been more upfront about the downside of trade, they may have had greater credibility as honest brokers in this debate.

Similarly, we might have had a more informed public discussion about social dumping if economists had been willing to recognize that imports from countries where labor rights are not protected do raise serious questions about distributive justice. It may have been possible then to distinguish cases where low wages in poor countries reflect low productivity from cases of genuine rights violations. And the bulk of trade that does not raise such concerns may have been better insulated from charges of “unfair trade.”

Likewise, if economists had listened to their critics who warned about currency manipulation, trade imbalances, and job losses, instead of sticking to models that assumed away such problems, they might have been in a better position to counter excessive claims about the adverse impact of trade deals on employment.

In short, had economists gone public with the caveats, uncertainties, and skepticism of the seminar room, they might have become better defenders of the world economy. Unfortunately, their zeal to defend trade from its enemies has backfired. If the demagogues making nonsensical claims about trade are now getting a hearing – and, in the US and elsewhere, actually winning power – it is trade’s academic boosters who deserve at least part of the blame.

Credit: Naked Capitalism

40 Comments

  1. Alexander Innes

    It’s not got anything at all to do with free trade! That’s where you so called economists are wrong.
    It’s offshoring.
    when you have a factory, say, in Philadelphia. And that factory sells the goods it creates in and around Philadelphia. Then you take that factory and move it 10 miles over the mexican border and ship its goods back to sell in Philadelphia. That’s not trade.
    That’s Bullshit, and that’s what we need to stop. Not free trade.

  2. How about fair trade? If you load up the US with regulations, well-intentioned ones such as workers rights, health and safety regulations, etc., you cannot then allow businesses to move their operations into countries which compete on their distinct *lack* of these regulations and then bring in their products penalty-free into the US market. That is unfair to local businesses as well as workers. Minimum working conditions overseas must be mandated. People just assume it’s normal to allow Nike to import from sweatshops, this doesn’t need to be the case!

  3. Alexander Innes

    The next item is not got anything to do with Patent protection.
    when you create a drug, negotiate the sales price of that drug all through europe, but sell that drug in the usa for 10 times as much as the negotiated sale price in europe, more bullshit.
    You should close the bullshit books you are reading and get a real job. then your mind will change about “Free Trade”

  4. Disturbed Voter

    I don’t think there are any genuine enemies of free trade … since that is merely interpreted as advantageous asymmetrical trade, where each person thinks that the hidden hand will lead to their advantage, not to the advantage of The Hidden Hand … finance.

  5. Trump appears expert at hidden hands.

  6. With short fingers you can do whatever you want.

  7. In this country free trade was ALWAYS about knocking the bottom out of the wages of the middle class. ALWAYS.

  8. Romancing The Loan

    “Just bear with me here, but it might possibly be that arguing in bad faith makes people distrust you.”
    Truly, you have a dizzying intellect.

  9. Speaking of arguing in bad faith, one thing that really pisses me off about how most economists talk about trade is the fact that they only mention about 30% of the classical theory. To wit, removing tariffs between a relatively low-wage country and a relatively high-wage country is expected (according to standard theory) to cause wage levels to converge, i.e. the high wage country’s workers wages will go down. Classical economics recognizes that free trade is therefore likely to actually harm some sectors of society while benefiting others.
    Free trade is argued for on the basis of there being a net gain, from which it would be possible for the winners from trade to compensate the losers so that no one ended up worse off…after the transfer payments have been made. Economists, of course, skip over the “good for some, bad for some” and “transfer payments are required to make sure that trade is universally beneficial” parts of the theory when it comes time to talk about actual trade policy. They just claim that removing trade restrictions will be beneficial to everyone, without mentioning the fact that that will only be true if we require massive transfer payments to those who free trade screws over…and then call anyone who disagrees a protectionist.
    It’s that disingenuousness that led me to record this:
    Free Trade Is Why You Can’t Get a Raise:https://www.youtube.com/watch?v=9dlJglpzD3s

  10. Except some costs do not fall: Medical and Housing appear to be two which should fall if wages fall, and there is little evidence of falling wages driving falling living costs.

  11. H. Alexander Ivey

    Where to start with this malarky of if-only-economists-had-the-courage-of-their-convictions”… ought to be more like courage of convicts if you ask me….
    There was a lot more but I self-moderated it, I want drinking rights to this party and the hostess runs a righteous tight ship. Suffice to say, economists are not my favorite class of people right now. But at least we are off of Trump! Oh…what…what’s in the headline…Nnnnooooo…..

  12. Economists “sticking to models,” using the phrase “distributive justice” as if it was a thing, now concerned about “having lost their credibility.” Do carnival barkers have credibility? They just know how to “never give a sucker an even break,” and how to assist the local-yokel “fools” in soon parting from their money, before moving on to the next village…
    Yah, fella, good-oh on you for writing that book ten years ago that in obscure Economese gave warnings of dire-ness in the great global FIRE-fokking. Does that mean you are taking up arms against the Fuggers? Or just sitting on the left chairs in those C-SPAN panels, to offer your “viewpoint?”

  13. That isn’t a chicken coming home to roost. It’s a flying pig.

  14. Sound of the Suburbs

    Think about it, the real requirements of globalisation and trade.
    China and India have added a billion workers a piece to the global workforce, there is plenty of spare capacity in the labour force acting as a permanent drag on wages.
    Foolishly we have let living costs soar in the West, with house price booms nearly everywhere apart from Germany.
    The high mortgage payments and rent eat into suppressed wages reducing the standard of living and purchasing power of the vast majority of workers.
    For workers in the West to compete in a global economy, we need a similar basic cost of living to those in the East.
    The minimum wage to cover the basic cost of living must be the same in the East and West.
    The US has probably been the most successful in making its labour force internationally uncompetitive with soaring costs of housing, healthcare and student loan repayments.
    These all have to be covered by wages and US businesses are now squealing about the high minimum wage.
    The free and subsidised stuff that was removed now has to be covered by wages.
    If the cost of living is the same in different nations, international free trade works well.
    Where countries have a high cost of living, like the UK, its labour will get priced out of international markets.
    All understood by economists in the 18th and 19th Century who saw small state, raw capitalism firsthand.
    The neoclassical economists forgot all the lessons that were learnt when we had small state, raw capitalism first time round.
    We forgot what low cost council housing was for; it helps to make UK labour internationally competitive, enabling the UK to engage in free trade with the rest of the world.
    With low cost housing, wages can be lower and it’s good for profits.
    Break out the 18th and 19th Century economic textbooks to get us back on track.
    They understood small state, raw capitalism; they just looked at the world around them.
    We will have to impose tariffs because we can’t compete; the cost of living is too high.
    You tax “unearned” income to provide free or subsidized housing, health care, education and other services; it reduces the minimum wage and makes you internationally competitive.
    They knew this in the 19th Century, they had a good understanding of international trade without tariffs in those days
    History
    The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners’ interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive.
    Today
    Housing booms throughout the West increasing the cost of living through high rent and mortgage payments rendering the West internationally uncompetitive in an era of globalisation.
    Solution
    Start building more council houses to gain international competitiveness.
    Low cost housing, low rents, low wages, internationally competitive workers.
    Conclusion
    Housing booms are just like the Corn Laws, raising the cost of living.
    The cost of living in the West needs to match that in the East for a free trade world otherwise tariffs are necessary to combat the difference between the cost of living in the West and East.
    No one understood the requirements of a free trade, globalised economy.
    If you want a free trade, globalised economy you need to think about its requirements, no one did.

  15. The ridiculous cost of health care and pharmaceuticals in the US is an egregious negative factor, because it is a disadvantage over other high-wage Western countries and drives up the cost of everything. Also a major drag on entrepreneurship since it is more difficult to get adequate coverage outside a large employer’s plan.

  16. “As my book Has Globalization Gone Too Far? went to press nearly two decades ago, I approached a well-known economist to ask him if he would provide an endorsement for the back cover. I claimed in the book that, in the absence of a more concerted government response, too much globalization would deepen societal cleavages, exacerbate distributional problems, and undermine domestic social bargains – arguments that have become conventional wisdom since.
    The economist demurred. He said he didn’t really disagree with any of the analysis, but worried that my book would provide “ammunition for the barbarians.” Protectionists would latch on to the book’s arguments about the downsides of globalization to provide cover for their narrow, selfish agenda.”
    ============================================================
    “Protectionists would latch on to the book’s arguments about the downsides of globalization to provide cover for their narrow, selfish agenda.”
    Pray tell me, why does this economist think globalists do not have a narrow, selfish agenda???
    Honestly, apparently you to go to an esteemed university where you are taught that “free traders” who are trying to screw you don’t announce that they are trying to screw you…and you believe it!

  17. Maybe you didn’t read the whole piece:
    “In truth, many trade enthusiasts are no less motivated by their own narrow, selfish agendas. The pharmaceutical firms pursuing tougher patent rules, the banks pushing for unfettered access to foreign markets, or the multinationals seeking special arbitration tribunals have no greater regard for the public interest than the protectionists do. So when economists shade their arguments, they effectively favor one set of barbarians over another.”

  18. Sound of the Suburbs

    Where did it all go wrong?
    Today’s experts are trained in today’s economics that is no good.
    A PhD in neoclassical economics leaves you poorly qualified to run an economy and the FED is full of them.
    2008 – “How did that happen?”
    In 2008, the Queen visited the revered economists of the LSE …..
    “If these things were so large, how come everyone missed it?”
    The Queen has taken note, but the mainstream media remain oblivious.
    Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions.
    He identifies four common aspects of their work:
    1) Concern with financial assets as distinct from real-sector assets
    2) With the credit flows that finance both forms of wealth
    3) With the debt growth accompanying growth in financial wealth
    4) With the accounting relation between the financial and real economy
    Steve Keen was one of them and saw the private debt bubble inflating in 2005.
    Ben Bernanke could see no problems ahead in 2007 (bad economics).
    Steve Keen carries on the work of Irving Fisher and Hyman Minsky looking into debt inflated financial asset bubbles.
    “Minsky Moments”
    1929 – US (margin lending into US stocks)
    1989 – Japan (real estate)
    2008 – US (real estate bubble leveraged up with derivatives for global contagion)
    2010 – Ireland (real estate)
    2012 – Spain (real estate)
    2015 – China (margin lending into Chinese stocks)
    Debt inflated financial asset bubbles, that inflated and burst under the watchful eye of Central Banks staffed by people without the necessary training.
    Housing booms around the world, debt inflated asset bubbles that inflated and are waiting to burst under the watchful eye of Central Banks staffed by people without the necessary training.
    Let’s get some real experts in.
    How to get out of debt deflation?
    Studied by Richard Koo after watching Japan for 25 years after 1989.https://www.youtube.com/watch?v=8YTyJzmiHGk
    Austerity is the worst thing you can do.
    Fiscal stimulus coupled with low interest rates, keeps the money supply stable while the debt is paid down.
    Whose idea was it to let banks maximise profits with their debt products where Central Banks are not trained to recognise the dangers of private debt bubbles?
    The only way out now is fiscal stimulus and the co-ordination of Central Bank and Government efforts meaning Central Banks can’t be totally independent.
    Larry Summers:
    “Former Treasury Secretary Summers Calls For End Of Fed Independence”
    “Central bank independence “comes from an understanding of the macroeconomic policy problem that is not relevant to current times,” Summers said in a speech at the International Monetary Fund.
    Central bank insulation was needed in the 1970s and 1980s to combat inflation, Summers said. That’s because the White House and Congress sometimes saw the short-run benefits of unexpected inflation, while the Fed kept its eyes on the long-run costs, he said.
    But that was yesterday’s problem, Summers said. The economy now faces secular stagnation, or a chronic lack of demand.”

  19. Sound of the Suburbs

    What is missing from today’s economics?
    1) The work of the Classical Economists and the distinction between “earned” and “unearned” income
    Reading Michael Hudson’s “Killing the Host” is a very good start
    2) How money and debt really work. Money’s creation and destruction on bank balance sheets.
    3) The work of Irving Fisher, Hyman Minsky and Steve Keen on debt inflated asset bubbles
    4) The work of Richard Koo on dealing with balance sheet recessions
    5) The realisation that markets have two modes of operation:
    a) Price discovery
    b) Bigger fool mode, where everyone rides the bubble for capital gains
    There may be more ……

  20. Yes, well said.
    Still the simplest answer is that these economists have, directly or indirectly, been paid to say what they say. It might not always be a specific quid-pro-quo, mind you. They might be unconsciously biasing their results to avoid antagonizing powerful donors and editors etc., or it might just be a sort of selection bias where only those economists that reliably parrot the party line get hired, promoted, published, funded, etc. But, like most corporate journalists, one way or another, I suggest that they have been paid for.
    And what does it mean when the mass of the academic establishment (that is concerned with matters of public policy) has thrown away its credibility? Can we blame the average person for thinking that climate change is a hoax? Or that vaccines cause autism? A million isolated blogs, no matter that many (like this one) are sane and rational, they are atomized and lead people to read only what they want to read, and cannot substitute for an academic establishment that has sold out its integrity.

  21. Suggesting that economists had a hand in electing Trump is giving them too much credit.
    The influential economists simply tell the boss what he wants to hear.
    Economists, like journalists, have to be careful not to bite the hand of those who feed them.
    Hence “free trade”, outsourcing, and freer movement of labor across borders may increase measured GDP, with gains accruing to the top, while the harmful effects are diffused into the population.
    Perhaps economists, as a group, do not suggest that increasing the effective supply of American labor via outsourcing, insourcing, and immigration will not put price pressure on American labor.
    But economists pushing the “free trade” mantra seem to suggest that it is good for labor (“cheaper goods to enjoy when you are out of work?”) as well.
    The stagnant wages over the last 40 years for the median US male worker argues that this is exactly what happened.
    The harmful economic effects are met with “I feel your pain” political statements, but no amelioration.
    I suspect that economists are unknown/ignored by the 99%.
    As a group, economists serve the 1%.

  22. And what about the notion that we live on a planet of limited size with limited natural resources (re: global trade)? Did that ever figure into the models?
    Seems like that would be a glaring and critical omission in retrospect.

  23. Yeah seemingly free trade = endless expansion of consumerism = like when locusts strip the land back to the earth. What’s the endgame?

  24. The economic elite have been expunging and maligning anyone who rises to a leadership position in support of working class interests. Their greatest achievement has been to use propaganda to convince the working class that the relationship between owners and workers is not confrontational. Indeed, that their interests are not contradictory but mutual. They have been so successful that now only demagogues can fill the void.
    At its core, the enlightenment sought to order human society guided by the power of reason. Capitalists harnessed this power to conquer the natural world and extract the seemingly boundless resources before them, pulling the masses along the way in a mutual dependency of provider and consumer. This relationship can continue only if endless growth, endless consumption is possible. Reason clearly reveals that this is not possible under our current relationships, both to one another as humans, and our relation to the rest of the living world.
    Life depends on giving back something from the taking. You must give back. Capitalism, as a system, only takes and tries to rationalize away this unnatural outlook and present day economists have made sure this injustice has remained hidden or marginalized. Debts that can’t be paid, won’t be paid is true in a human relation sense, but debts to the natural world must be paid. Death and extinction follow such neglect.
    Our times are dangerous because the social bonds that tie us together have reached a breaking point. Reason dictates that the old power structure needs to step aside and let new ideas rise to the fore. A true, sustainable, world economy will have to be a socialist one, based on mutual support and respect. Baring that, a world of chaos. Globalism is dying because its dream is based on a foundation of lies. The intellectual arguments used to perpetuate it become more convoluted and contradictory daily. The truth, the reality of its destructive nature can no longer be hidden.
    The use of nature metaphors is very appropriate and instructive. We are all bound up together in one world. We are all entering capitalism’s winter season. How long, or how cold that winter will be is up to debate, along with who will survive its coming.

  25. Well, Krugman was the leading authority on (and for) “free trade” agreements in the 90s and it wasn’t until 2016 that he offered a grudging admission — in a blog post, and only after being berated for months in the comments — that these deals don’t deliver on the promises of growth and general prosperity touted by the vested interests which promote them.
    When intellectual dishonesty is know to be a market outcome, who’s going to listen to economists whose behavior confirms the crudest understanding of market incentives?

  26. The people with money and power propagandize the “truth” the benefits them the most.
    Most economists, if they want to have successful careers, perpetuate this.
    For all the rhetoric about “freedom” the US is a pretty hostile place for people who go against the interests of the wealthy.

  27. There was a comment last night on Robert Samuelson’s article at the WP, the comment being how “free trade” increases aggregate wealth. So I responded with this:

    And you make a lot more wealth when you outsource your supply chains to countries that are manipulating their currencies. And those countries in turn make a lot more wealth from not only having the supply chains stood up in their countries, but also from the quantitative easing being injected into their economy (from their central banks printing the local currency to buy the US dollars being imported – i.e. the currency manipulation that makes it all hang together).
    That’s what I call a win/win/win/win: a win for the corporations in the US, a win for the exporters in our trading partners who we let take over our supply chains, a win for the wealthy elite in those same countries who benefit from the QE increasing their money supply, and a win for the middle class in those same countries who are employed in those supply chain industries as well as the domestic industries that the QE money gets injected into (e.g. housing in ghost cities).
    Now somebody loses in all this and I’m trying to remember who that is. Think they had something to do with Trump winning.

  28. Aside from the people who lose in these transactions (and end up supporting Trump in the general election [or Sanders in the Democratic primary]), there is the matter of fuel usage to unnecessarily transport goods from one continent to another. The burning of diesel (or whatever oil is used) to power a giant cargo ship isn’t the biggest cause of greenhouse gas emissions, but it’s more than zero. Wherever possible, the Chinese should sell to other Chinese, Americans should sell to other Americans, etc. Let’s not cause pollution that’s easily avoided.

  29. Agreed. My point was that this wouldn’t be happening if our trading partners weren’t monetizing the trade deficit with the US to generate QE bubbles. Causes one to wonder where our trade partners get the biggest “wealth” effect: from the trade surplus from or from the concomitant QE increasing their monetary base.

  30. Why blame the gun when it was the bullet that killed you?

  31. Please demand that economists explain how exacerbating dependence on long, as in trans-Pacific, supply chains enhances energy and natural resource efficiency or national security. It does not unless economists have devised their own laws of physics.

  32. Yes! Thank you. While agreeing with DJRichard, I posted a comment at 12:00 PM with similar thoughts.

  33. “In short, had economists gone public with the caveats, uncertainties, and skepticism of the seminar room, they might have become better defenders of the world economy. ”
    Better defenders? Isn’t the whole problem that a world economy presupposes the current system ‘done right’?
    That’s not what multi-polar means.

  34. There is something similar with political scientists.
    Since the late nineteenth century, when conscript armies have become important, there has been a trend of basing political legitimacy around the public’s ability to elect representatives to a legislative assembly, and in some cases to elect executive branch officials.
    However, the elites, meaning private persons with alot of wealth and power and senior bureaucrats, repeatedly take steps to make sure that this trend doesn’t matter much. Tactics have included allowing only one slate of candidates to run into the election, to stuffing/ discarding ballots, killing workers for dissident parties, controlling the elected legislatures through techniques such as bribery and blackmail, controlling information to voters etc. There has also been a trend to move away from the cruder tactics such as making only one party legal.
    Aside from the most obvious cases such as one party states, political scientists pretty routinely don’t pay attention to electoral fraud and post-electoral manipulation of the political process, which in some countries can lead to an understanding as bad as how a countries political system works as any economist has over how economies work.
    Academics in general give too much credit to intellectual scams, to the point of it often being hard to tell if they themselves are in on the scam.

  35. I’m writing this from rainy Manchester England where the industrial revolution began – because cotton spinning and weaving needs a damp climate. We couldn’t stop manufacturing (and consequently industrial jobs) moving to Germany (who we went to war with because of trade in WW1) and then to the United States (who were regarded in the UK in late Victorian days in exactly the same way as China is in the US today). China, India, and soon Africa, all want their place in the Sun and nothing will stop them. Manchester now is post-industrial, focused on services, IT, finance, education and media; brainy city not rainy city. The white working class have been left out of the party and consequently kicked-off in the Brexit referendum.

  36. I wish more had been done to explore what might be expected in a Trump regime. Since he is opposed to all prevailing and proposed trade agreements, where does that leave us?

  37. I suppose some countries might retaliate by setting high tariffs on United States products that they never buy.

  38. I suppose some countries might retaliate by setting high tariffs on United States products that the United States does not make.

  39. That too!

  40. dzasukwa Musoni

    Probably an uneven distribution of power and power dynamics. Power takes many forms- technology, money, finance, knowledge etc etc. It is that power which dictates the way trade deals and agreements are structured and negotiated. It will be naive suggesting that trade is wrong or blaming world unemployment and poverty on trade. You can’t blame readers or audiences for the criminality of editorship for example. You may blame the readers and audiences for their own Gullibility. Generally speaking, believing in something too much, too little is toxic.

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