PARIS — What if Donald Trump was right to close the borders? For quite a long time, the vast majority of economists would have scoffed at this very question. Come on, the advantages of free trade are obvious! Or so most economists agreed. And yet, there are more and more studies that paint a very different picture, studies showing that competition from China, for example, could cost France more than 100 jobs a day.
So why have economists trusted free trade for so long? Some would say it's ideological conviction, a faith in the supreme efficiency of the market. But there are many other, less ideologically driven proponents of open borders as well.
Nobel Prize winner Paul Samuelson explained it half a century ago. A friend of his in mathematics challenged him to find a proposition in the social sciences that is both "true and non-trivial." Samuelson responded by citing a 19th-century theory by David Ricardo — the theory of "comparative advantage" — which holds that two countries mutually benefit from trade even if, in absolute terms, the overall productivity of one is greater than the other.
Competition from China could cost France more than 100 jobs a day.
"That it is logically true need not be argued before a mathematician; that is is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them," Samuelson said.
The superiority of free trade, in other words, is self-evident for professional economists — an answer to existential angst and proof that economics is a useful science.
For decades, international trade experts dissected this notion of comparative advantage. But in the meantime, the world changed. In 1992, business magnate Ross Perot won 20 million votes in the U.S. presidential election after warning that there would be "a giant sucking sound" as Mexico drained his country's jobs. A year later, French Senator Jean Arthuis published a report that called for higher tariffs. In 1999, tens of thousands of protesters invaded Seattle to advocate against further trade liberalization.
Paul Krugman, who won the Nobel Prize in 2008, argued at the time that the problems created by international trade were minor. But China's rise to power has changed the grand order of things. What was true when Malaysia or South Korea industrialized is no longer true now that the most populous country on the planet is covered with factories.
Paul Samuelson, who praised the virtues of free trade, confirmed his beliefs in 2004. With an explanation similar to that of David Ricardo, he uses two countries to illustrate that "free trade can sometimes make a technological change in the country that benefits both countries, while a boost in productivity in one country can sometimes benefit only themselves and permanently weaken the other."
Which is responsible for the loss of more jobs, computers or globalization?
Rather than rely just on their ideological convictions, many pro-free-market economists base their arguments on real-life examples. U.S.-based economists recall how protectionist policies implemented in South America — in Brazil, for example, as an attempt to coddle its nascent industries — failed spectacularly. They live too far away, it seems, to notice that places like South Korea and China were able to protect their markets efficiently, as did the U.S. for that matter — in the 19th century.
At any rate, it's been difficult for a long time now to distinguish between the effects of free trade and technological advancements. Which is responsible for the loss of more jobs, computers or globalization? Nor is it possible to say that what works for one country necessarily works for all.
Economists do at least agree now that globalization has both winners and losers. They also have new tools at their disposal allowing them to more precisely analyze the impacts of trade. And yet, the conclusions they draw are still contradictory. Renowned international trade expert Gary Hufbauer calculated that while the tariffs the U.S. imposed on Chinese tires in 2009 saved 1,200 U.S. manufacturing jobs, they destroyed three times that many jobs in other American sectors.
David Autor, a labor economist at MIT, made waves five years ago when, alongside David Dorn and Gordon Hanson, he argued that competition from Chinese imports had destroyed half-a-million U.S. industrial jobs between 1990 and 2017. But Robert C. Feenstra (of the University of California, Berkeley), Hong Ma and Yuan Xu (from Tsinghua University) used the same tools to argue that increased exports from the U.S. have created almost that same number of jobs.
Economists as a whole are hardly saying that Trump is right. They are simply now looking at international trade with less bias, therefore increasing their chances of fully comprehending the effects of globalization and solving the age-old dilemma of balancing fairness and efficiency. Samuelson made a grating comparison. "Marie Antoinette, famously said, 'let them eat cake,'" he recalled. "But history shows no record of any transfer of flour or butter to her peasant subjects."
See more from Business / Finance here