Dean Baker
Oren Cass, the head economist of Compass, had a column in the New York Times touting Donald Trump’s proposed tariffs. The gist of the piece is that “free trade” has not worked out as economists’ textbooks promised and we should look to take a different path.
As someone who was very critical of the major trade deals of the last three decades, I would say that they did work out very much as the economists’ textbooks promised. But they were also not “free trade” and imposing high tariffs will not help us going forward.
First, the economists’ textbooks did not promise that everyone would benefit from opening trade. They show that there would be a redistribution from some types of workers to other types of workers and/or capital. There is a famous article, co-authored by the first American Nobel Prize winner Paul Samuelson, that laid out this theoretical argument more than 80 years ago.
Economists pushing NAFTA, China’s entry into in the WTO, and other recent trade deals always waved off the logic of the Stolper-Samuelson model, or alternatively promised government policies to offset the distributional impact of trade openings. As a practical matter, the policies (mostly trade-adjustment assistance) were one or two orders of magnitude too small for the job.
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