Why are liberals so deluded on free trade?
Draw a rough semicircle around the Great Lakes, starting in the west and moving southeast, from Duluth to Chicago to Detroit to Buffalo. Sixty years ago, this was the throbbing heart of American capitalism, by far the biggest complex of industrial production in the world. Now it's a beat-down zone of economic hardship or all-out calamity.
Among the biggest culprits is free trade.
The downsides of free trade — which has caused American factories and jobs to be shipped off to other, cheaper places — has been a continual theme in the populist presidential campaigns of Bernie Sanders and Donald Trump. Sanders hit this theme again in a recent op-ed, arguing that America should reject free trade agreements like the Trans-Pacific Partnership, and pursue a more balanced "fair trade."
New York's Jonathan Chait pounced, accusing Sanders of wanting to sell out the global poor, and concluding that Trump actually has a more intelligent understanding of trade, since he portrays his policies as overtly wanting to shaft the rest of the world.
The line about Trump may be safely dismissed as trolling Bernie fans for clicks. However, Chait's mangled ideas provide a good window into persistent liberal delusions about free trade, whose benefits are more contingent and hazardous than most liberals would like to admit.
Now, it's true that our new age of globalization has been mightily beneficial to much of the world population outside the developed world, at least defined in income terms. Growth in China, India, and elsewhere has meant huge strides for the middle of the global income distribution — as well as the very top. Chait rightly cites Branko Milankovic's recent Global Inequality, which deals with this very question. Leftists like Sanders can often be a bit squirrelly on this point, since they would like to protect the American working class without harming anyone else. But Chait's characterization of the case against free trade as resting on "protecting the interests of the working class in rich countries at the expense of the global poor who are taking their jobs" is hogwash. It's not nearly so simple.
First of all, there's no reason why the Western working class has to take the hits of globalization. One could easily imagine a counterfactual history where working class declines were compensated by increased taxation on the rich and better welfare. (That this didn't happen is largely due to neoliberals eliminating trade barriers and cutting welfare at the same time.)
But the more fundamental thing to note is that rich nations almost universally got rich behind stiff tariffs and other anti-trade measures. That was true of the United States in the 19th century, and it was true of Japan and South Korea in the 20th century. The reason for such trade policies was perfectly obvious at the time. As Sven Beckert details in Empire of Cotton, before the Industrial Revolution, the vast majority of cotton growing and textile manufacturing happened in India and China. But as Britain hit on the first instance of spectacular productivity growth, they flooded the Asian markets with very cheap textiles — and enforced their access to those markets with military force.
The result was merciless deindustrialization of India and China, as their entire manufacturing base (largely hand-operated spinners and looms) was cored out by British imports, and tens of millions of Indians lost their main source of income. This in turn badly worsened numerous famines.
In short, the first big instance of worldwide free trade is a huge part of the reason why the non-European parts of the world are poor in the first place.
U.S. policymakers took note, and erected stiff barriers to foreign imports, particularly of textiles and industrial equipment. With Britain's productivity head start, free trade would have throttled New England's young textile industry in its crib.
Of course, the situation is different today. But this does illustrate the basic problem with unrestricted trade: instability. It means tremendous buildups of industrial production, which are ripped apart mere decades later in search of slight competitive advantage, leaving vast human carnage in its wake.
There is another model, one which allows for the necessity and the value of trade, but recognizes that it must be subject to democratic control. Unrestricted capitalism is violently unstable, and must be subject to careful controls in many places. Recession policy is one; trade is another.
It is vital for poor nations to get a start on the development ladder. This may mean some harm to Western working classes, but it would stop well short of flushing entire built-up cities down the economic toilet. Above all, poor nations should avoid serving as mere colonial outposts for huge Western multinationals; that model of development is weak and tends to lead to corruption. Instead, they should seek to develop their own industry, and eventually their own internal market, as rich nations before them have done.
As often as not, this will mean moderate trade restrictions of one sort or another enacted over the objections of glib free marketeers like Jonathan Chait.