Progressive Free Trade?

While numerous books extol the merits of free trade, not as many make the argument from a progressive perspective. Kimberly Clausing does just that in, Open: The Progressive Case for Free Trade, Immigration, and Global Capital. She proposes a broad economic vision to tackle the challenges of economic inequality – the “dominant economic problem of our time” – and hones in on middle-class wage stagnation (p. 8). Here, Clausing empathizes with the plight of the modern worker – understanding there are winners and losers when it comes to issues like trade – yet argues that other elements of the modern economy are more influential in generating middle-class discontent. She identifies six factors that contribute to economic inequality and middle-class stagnation, (1) Technological Change (p. 26); (2) Trade and Global Competition (p. 30); (3) The Role of Superstars (p. 37); (4) the rise of profits (p. 39); (5) Bargaining, Power, and Norms (p. 42); and (6) Tax Policy (p. 44). While all six play a role, she argues that reversing factors such as technology or trade might have more harmful long-term outcomes. In fact, trade, immigration, and international business will have vital functions in solving the economic challenges of our time. Clausing suggests we enact “policies to equip workers for a modern economy”, which includes trade agreements, safety nets for workers and communities, and government investment in education, research and development, and infrastructure. Additionally, she calls for tax reform (not the recent Tax Cuts and Jobs Act of 2017) and a better society/business relationship, accompanied by transparency and stronger anti-trust laws. (48).

Clausing’s three chapters on trade cover arguments espoused in other works, but her clarity alone makes this book a welcome contribution. In particular, she writes an outstanding explanation of comparative advantage – a concept that economists often view as simultaneously true and counterintuitive (p. 68-69).

Another highlight in her pro-trade argument comes from her examination of the claim that trade with lower-income countries is a primary cause of reduced labor demand in the United States. If the United States trades with countries possessing cheaper labor, we may normally think the demand for labor in those countries would increase somewhat proportionately to the reduction in the United States (I.e, an inverse relationship between labor demand with the United States and other countries). Yet, we see similar increases in economic inequality and a decreasing share of labor occurring in the trading partners of the United States as well (pp. 86-89). Instead of an inverse relationship, we see the same overall trends with the US and its trading partners. This does not prove trade has no effect on US labor demand, but rather Clausing suggests that other factors, such as technology, automation or even the political climate may exercise larger effects on the share of labor (also see Irwin 2015 p. 138).

A further strength of Clausing’s work is in the bipartisan nature of some of her policy proposals. While the more progressive policy proposals requiring a larger role for government, such as increased R&D or education spending, will probably not sway conservatives or libertarians, she presents some ideas that may find broader support. In particular, she advocates for an expansion of the Earned Income Tax Credit (p. 246) and also relocation assistance to improve the mobility of displaced workers (p. 229). Both of these ideas were also proposed and supported by former American Enterprise Institute President Arthur Brooks. While political unity or agreement is not inherently virtuous, Clausing provides useful points of agreement that can serve as conversation starters for issues that affect worker well-being.

Clausing’s work is an excellent read, yet I’d like to push back in a few areas. While she acknowledges that trade creates winners and losers and mentions the importance of trade adjustment assistance, she glosses over the difficulties in past attempts to address the issue (p. 112; pp. 228-229).  In Douglas Irwin’s “Free Trade Under Fire”, he laments the challenges we’ve had in assisting those whose livelihoods were altered by trade (Irwin 146-155). Irwin highlights the failures we’ve had in successfully retraining displaced workers and reentering them into the workforce at comparable wages (p. 154). He thoroughly supports free trade but acknowledges there is not an easy solution to this issue (Irwin p. 154). While Clausing could defer to her broader argument for modernizing the United States economy, further explication of the challenges and past failures in this area is necessary.

My second critique targets one of Clausing’s primary solutions, stronger antitrust laws. In fairness to Clausing, she acknowledges the benefits of big business and recognizes the tricky nature of regulating big business well (p. 284). Since she acknowledges the difficulty of regulating business well and the legitimate disagreements on the effect of monopolies on consumers, her solution required nuanced elucidation. If monopolies are problematic, we have to recognize where the monopoly power is actually coming from. Capitalistic growth in a free market is not always or necessarily the generator of monopoly power. Economist Tyler Cowen argues that certain government regulations can unintentionally produce monopolies (Cowen 2019 p. 91). In particular, if regulations increase barriers to entry, it may benefit larger companies that have the resources to overcome them, while providing extra challenges for smaller competitors. Cowen uses the example of insurance companies that consolidated to overcome regulatory barriers and take advantage of economies of scale. Obviously one could grant Cowen’s argument in some cases, but rightly identify that his critique does not apply in every circumstance. Still, the causal variation in monopoly emergence and deciding which ones are actually harming consumers creates a challenge in strengthening antitrust laws.

Clausing progressive arguments for free trade, immigration, and global capital are valuable and unique. Her clarity in explaining many of the central issues in trade makes this a great introduction to the topic, and there is also plenty of value for those differing from Clausing’s political persuasion. In an era of polarization, this book simultaneously proposes a progressive solution while showing where common ground exists.

Want to Dive Deepring into the Topics covered in Open? 

It’s Good Jobs Stupid – Daron Acemoglu

Free Trade Under Fire – Douglas Irwin

Straight Talk on Trade – Dani Rodrik

Big Business: A Love Letter to an American Anti-Hero – Tyler Cowen

The Conservative Heart: How to Build a Fairer, Happier, More Prosperous America – Arthur Brooks

Update: I mention in the first paragraph that Free Trade arguments are not usually made from the progressive perspective. Here is another article making a similar argument from Hilary Matfess.

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