Goose, Gander, and Economists

I agree with Brad DeLong: The Democratic proposal to slap a punitive tax on Chinese goods and the people who buy them unless the People's Republic re-values its currency to something the US Congress is happy with is a bad idea, and Hillary Clinton and Barack Obama shouldn't be supporting it. As Brad says, it's "a classic threat to shoot ourselves in the foot."

Now where I tend to lose the plot is this. If mainstream economists like Brad think it's a bad idea to use threats of tariffs to push China into changing its exchange-rate policies, how come the economics mainstream seems to have so few complaints about the fact that it's completely normal for US trade negotiators to use exactly this sort of leverage to try to get other countries to change the intellectual properties policies or to privatize their water systems or what have you? Why is the threat to shoot ourselves in the foot okay when made on behalf of pharmaceutical companies and movie studios, but not when made on behalf of import-competing manufacturers? Often when I see this argument made, I feel like the point is -- aha! hypocrites! you should support our China bill after all! -- but I really do think Brad's right, this is a bad bill. But by the same token, the people who complain about this sort of thing ought to complain about the other sort of thing as well.

Photo by SEIU International used under a Creative Commons license

Comments

Are you talking about CAFTA? Because I recall DeLong being pretty critical of it at the time.

Posted by JP | July 10, 2007 11:47 AM

I thought the whole point of forcing other countries to privatize their water systems, open up their banks, accept western Intellectual Property rights laws, etc., was that it was asking other countries to shoot themselves in the foot. The US comes out ahead whenever we get to invest in developing nations. Right?

Posted by Nicholas Beaudrot | July 10, 2007 11:57 AM

You want to see Chinese society became more belligerent and anti-American, either put on tariffs or, even worse, force them to re-evaluate their currency. Basically, we're saying "damn Chinese domestic stability, our temporary trade deficit is all that matters." Add in the fact that the British trade deficit vis-a-vis China was a huge factor in the British decision to start the Opium War, we end up playing right into an anti-Western nationalistic narrative without even realizing it. If Democrats really want to have an America that re-engages with the world, this type of stuff has to stop. MY's point is also a good one and brings up something that has always bothered me with US trade negotiations.

Posted by Reality Man | July 10, 2007 11:57 AM

Well, I can't speak for Brad or other public economists, but in my trade economics class, the professor was pro-free trade, abd anti- linking intellectual property rights and financial services to trade.

Posted by David | July 10, 2007 12:06 PM

What we have now really isn't free trade. It's faux free trade. It's "send (almost) anything and everything you want, in any amount, into the US. And don't worry, you can go ahead and keep restrictions on US stuff even though you've committed to do otherwise, because we won't do anything about it."

Case in point: Under NAFTA, Mexican citrus was able to enter the US without restrictions. US citrus sat rotting on docks and in warehouses because of bullshit "sanitary concerns". The US officials did nothing. They didn't care about enforcing their own rules. They still don't.

I think there is a mindset in officialdom that "free trade", even if it's really only a one-way street, is still a good thing that benefits the world overall. But I think they are starting to reap what they've sown. You can't sign bullshit agreements, ignore your own rules, and then squawk about protectionism when people start calling you on it. Protectionism is bad. But to a large extent, the free traders have only themselves to blame for it.

Posted by Claudius | July 10, 2007 12:26 PM

I really just don't understand economists positions on these issues. I understand the economists' argument for free trade. But economists support things like intellectual property laws, labor laws, and liberal ones even understand environmental regulations.

Now any given bill might be the wrong one, but we pass national laws on these issue to improve their effectiveness. Patents are not nearly as valuable if they only apply in California. And it would undermine the minimum wage across the country if Texas could unilaterally eliminate it. If there were no national government, trade restrictions would be the only resort available to state governments. I have never seen a free trade advocate explain the difference when it comes to international trade.

Lets consider one scenario: somehow the good guys win the debate on climate change in this country and we take the lead in the western world to substantially reduce green house gas emissions within the next 30 years. But China's emissions continue to explode. Maybe 70-80% of worldwide emissions are coming from China. At that point, isn't it imperative that we establish an enormous tariff on Chinese made goods to force them to bear the costs of their emissions? There is a point at where this stuff makes sense.

Posted by mpowell | July 10, 2007 12:29 PM

The answer is, Matt, they don't. Lobbyists for IP owning companies make these arguments. Can you find an instance where DeLong made a case for making IP part of trade agreements?

Posted by jayackroyd | July 10, 2007 12:40 PM

Matt's point is something that always infuriated me coming from a different direction. I.e., we would threaten to sanction, and sometimes sanction, China over IP piracy, and China would sometimes respond by cracking down.

But when anyone proposed sanctioning China over the gross abuses of its dictatorial regime, we'd suddenly hear how sanctions never work, the Chinese don't respond to them, the only way to get the Chinese to respond was to engage with them, etc.

We need to have a China policy, however stringent or lenient it is. But it should be consistent, and not based on the theory that the only rules that China needs to play by are IP laws.

Posted by Dilan Esper | July 10, 2007 12:48 PM

I think 9 out of 10 economists, if asked what free trade meant, would say "treat products from other countries the same as you treat products from your own country." That's all free trade is. If Columbia wants to get rid of, say, copyright on all music, that's beyond the scope of a trade agreement.

That said, economists aren't against other regulations per se. You often hear economists say "keep labor regs out of trade agreements", but I don't often hear them say "Abolish international labor standards altogether."

Posted by cure | July 10, 2007 12:57 PM

"I think there is a mindset in officialdom that "free trade", even if it's really only a one-way street, is still a good thing that benefits the world overall."

It's not just a "mindset in officialdom." This is what the vast majority of the economists who study trade have found -- you're better off dropping your trade barriers, even if the other guy keeps his.

Posted by too many steves | July 10, 2007 1:02 PM

Different exchange rates between the US and China produce winners and losers. Why shouldn't there be a democratic debate on what exchange we want, just we debate what kind of tax structure we want, what kind of labor regulations we want, what level off federal spending we want?

just the other day, you were criticizing the "media-political elite" for wanting to limit debate to credentialed experts. But on trade, you're still a beltway insider. Do you ever wonder why it is that nearly all economists are full-throttle free trade supporters, while practical politicians and ordinary people generally support trade restrictions? Could it be that there are conflicting interests here, too?

Posted by lemuel pitkin | July 10, 2007 1:10 PM

Could it be that professional economists know more about this stuff than politicians or the general public?

Posted by too many steves | July 10, 2007 1:25 PM

i think it might be because a lot of economists are worried about the prospect of China deciding to shift their bond purchases away from American securities, which would cause interest rates to rise significantly. the thing is, this concept is easily modeled and lends it self to the overall theoretically tilt of a lot of economists, whereas intellectual property law does not lend itself to neat and predictable macroeconomic analysis.

Posted by looj | July 10, 2007 1:34 PM

"It's not just a "mindset in officialdom." This is what the vast majority of the economists who study trade have found -- you're better off dropping your trade barriers, even if the other guy keeps his."

Nice strawman. Economists may very well feel that way, but that's got nothing to do with what I was saying. My point was that the US negotiated and signed onto trade agreements that were supposed to open markets in ALL the countries involved, and then did nothing when our trade "partners" violated the terms of those agreements.

A nation may very well benefit from having open markets, but allowing other nations to maintain trade barriers. But don't you think that trade agreements should actually mean what they say?

Posted by Claudius | July 10, 2007 1:50 PM

If we go on the idea that politicians need to say things that are politically acceptable to certain constituencies, that leads us to the idea that their advisers and their ideas show us where the politician will lead us. Remember in 2004, when Kerry and Edwards spent a lot of time bashing outsourcing, but had many people from Clinton's economic team, like Robert Rubin, working for them? Remember when Rubin basically suggested that Kerry was almost lying to satisfy his base? My guess is, that's what's going on here, too.

Posted by Brian | July 10, 2007 1:51 PM

That said, economists aren't against other regulations per se. You often hear economists say "keep labor regs out of trade agreements", but I don't often hear them say "Abolish international labor standards altogether."

Negotiating trade agreements is a little above the economist's pay grade. Negotiations are political process, if we think we can get a better deal by bundling negotiations we should do it. And not let a couple of poindexters with a bunch of excel graphs dissuade us.

I think we give the "economists" more credit than their track record warrants, and in far wider a sphere than their discipline actually covers.

Posted by AJ | July 10, 2007 1:52 PM

"Why is the threat to shoot ourselves in the foot okay when made on behalf of pharmaceutical companies and movie studios, but not when made on behalf of import-competing manufacturers?"

Let's see: pharmaceutical companies and movie studios (and high-tech manufacturers such as Boeing and John Deere) create high-paying jobs in the United States and are areas where we have comparative advantages. Low-tech manufacturing (making Mardi Gras beads, etc.) is a low-wage industry we can't compete with China on whatever they do with their currency.

Posted by Harry | July 10, 2007 1:56 PM

The politics of trade are really not all that complicated. It's the classic story of diffused benefits and concentrated costs. Economists, who sometimes treat utility like it's fungible across persons, don't seem to understand that in the real world Kaldor Hicks efficient deals that screw a few people a lot to benefit many people a little aren't always that popular.

Posted by henry evans | July 10, 2007 2:01 PM

"I think 9 out of 10 economists, if asked what free trade meant, would say "treat products from other countries the same as you treat products from your own country." That's all free trade is. If Columbia wants to get rid of, say, copyright on all music, that's beyond the scope of a trade agreement."

This paragraph is internally inconsistent. If I'm an American business and I start selling copyrighted music illegally, I'm not the only one liable. Anyone distributing my music is also breaking the law. A system of laws does not make sense unless it allows for its own enforcement. To ignore domestic laws when considering foreign goods is to treat those good unequally. If Columbia ignores copyright restrictions in their music CD production, that makes distributing those CDs in the United States illegal. It is hardly beyond the scope of a trade agreement to include clauses enforcing a legal framework into the agreement.

Posted by mpowell | July 10, 2007 2:16 PM

mpowell, at first I wondered just what in the hell you were talking about, and then I realized that a misspelling in the original post that you quoted (from "cure") caused you to misinterpret the whole thing.

I believe cure was referring to "Colombia," the country, not "Columbia," the record company. Does that make sense now?

Posted by dbeach | July 10, 2007 3:00 PM

Right, Colombia. Sorry for the confusion.

Posted by cure | July 10, 2007 6:15 PM

"Could it be that professional economists know more about this stuff than politicians or the general public?"

I'd say, after 2 decades of being told erroneously by economists that free trade and laissez faire domestic economic policies will make things much better for us all, that professional economists don't know jack squat!

Posted by Ricky | July 11, 2007 9:06 AM