US economists criticise cosy consensus for free trade agreements but agree that Trump’s tariff wars not the solution

January 13, 2020: Noah Smith recently reported on a debate about US trade policy at an American Economic Association meeting that showed more economists are criticising the “cosy consensus” on corporate-dominated free trade agreements.

Smith reported criticism of the original theory of free trade that each country should specialise in its most efficient products. This can be a trap for poor countries that export natural resources and forsake manufacturing, which might have a gain in wealth in the short term, but in the long term “could miss out on technological improvement and productivity gains.”

Others argued that there are both winners and losers resulting from trade agreements and that increased competition can lead to job losses and “weaken environmental and labor standards at the national level.”

Harvard economist Dani Rodrick argued that that “actual trade agreements tend to bear only a passing resemblance to the idealized notion of free trade in an economics textbook. Thanks to lobbying by business interests, real trade agreements are tangles of rules and regulations that can restrain competition.”

These rules include longer monopolies on medicines, delaying availability of cheaper medicines, and special legal rights for foreign investor rights to sue governments over domestic laws.

Proposed solutions included compensating for lost jobs through the tax and welfare system, removing corporate privileges from trade agreements and ensuring that trade agreements do not prevent governments from having effective local industry policies.

Smith reports that there was consensus that Trump’s tariff wars “are a bad response to the drawbacks of free trade, serving mainly as a tax on domestic consumers. They also invite retaliation, causing more carnage.”