Mar 18 2008

Mankiw on free trade in politics

Published by at 2:29 pm under Barriers to trade,Free Trade,Politics,Trade

Beyond the Noise on Free Trade – New York Times

Ever wondered which presidential candidate had the most “economistic” views on economic issues? In other words, which candidate supports economic policies most in line with the mainstream economic theories of our day: Obama, Clinton or McCain?

First question is what, exactly, are the mainstream economic views at issue? In Harvard Professor Gregory Mankiw’s article above, he talks about the issue of free trade:

Economists are, overwhelmingly, free traders. A 2006 poll of Ph.D. members of the American Economic Association found that 87.5 percent agreed that “the U.S. should eliminate remaining tariffs and other barriers to trade.”

The benefits from an open world trading system are standard fare in introductory economics courses. In my freshman course at Harvard, we start studying the topic in the second week, and we return to issues of globalization throughout the year. The basic lessons can be traced back to Adam Smith of the 18th century and David Ricardo of the 19th century: Trade between two countries creates winners and losers, but it leaves both nations with greater overall prosperity.

Indeed, all principles of economics courses (including our AP and IB courses here at SAS) teach in the first units the concepts of comparative advantage and trade based on specialization by nations in the production of the goods for which they have a lower opportunity cost than others. This basic tenet, illustrated so clearly with a simple productions possiblity curve, has proven to be the source of endless political turmoil in America, a country whose market economy is built on the principles of free trade, but whose citizens seem to increasingly oppose it today:

In December, an NBC News/Wall Street Journal poll asked Americans, “Do you think the fact that the American economy has become increasingly global is good because it has opened up new markets for American products and resulted in more jobs, or bad because it has subjected American companies and employees to unfair competition and cheap labor?”

When this question was asked a decade ago, the public was almost evenly split. In the recent poll, however, only 28 percent endorsed globalization, while 58 percent opposed it.

The protectionist tide seems to be rising in America in the face of rising unemployment, falling output, inflation and all-around insecurity among households and firms. So the question arises, where do the leading candidates fall on issues of free trade? Is it a threat to Americans’ well-being or the source of our vast wealth and power? Mankiw examines the candidates’ stances on a few major trade issues in the last few years. 

Here’s what he finds: Overwhelmingly, John McCain has shown support for policies aimed at expanding free trade, while Clinton and Obama have taken stances oposing open markets. From opposing tariffs on Chinese imports to advocating a reduction of subsidies to American farmers to supporting the Central American Free Trade Agreement (FTA) and the US/South Korea FTA, McCain has consistently fallen on the side of the mainstream economists on the issue of globalization, while his Democratic counterparts have taken stances opposing trade liberalization and the opening of new markets to competition between American and foreign producers.

What conclusions can be drawn from Mankiw’s observation? Are Democrats economically illitereate? Do Obama and Clinton need to sit through Econ 101 to learn that trade and specialization benefit society through expansion of output and lower prices? Probably not. Mankiw suggests that the rhetoric coming from the “Hillbama” campaigns is probably just populism aimed at gaining support of voters who fear the threat they perceive trade to pose to their livelihoods.

Maybe the candidates’ records as legislators are not good indicators of what their policies might be as president. Maybe campaign rhetoric… is nothing more than that. But counting on it requires, one might say, the audacity of hope.

Personally, I hope Mankiw is right, and that the Democrats prove to be a bit more “economistic” in their policies should one of them end up in office. What do you think? Should American voters believe everything candidates say in their campaigns? If Hillary and Barack appear to be anti-trade and protectionist now does that mean America will be put on a path of isolation should one of them win the White House? Should we, as economists, be afraid, or hopeful, in this time of “change” and “hope” in America?

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

4 responses so far

4 Responses to “Mankiw on free trade in politics”

  1. Hansen Guon 19 Mar 2008 at 12:09 am

    "Mankiw suggests that the rhetoric coming from the 'Hillbama' campaigns is probably just populism aimed at gaining support of voters who fear the threat they perceive trade to pose to their livelihoods." I agree with this bit, especially seeing that 58% of the population are against globalization. However, this statistic itself is interesting. Perhaps our fear of terrorism and acute xenophobia has clouded our judgment. I hope whichever party holds office does consider the notion of free trade. As we've learned academically and as the Ph.D. members of the American Economic Association have stated, it is in our best interest to lower these trade tarrifs.

  2. Sam Youngon 20 Mar 2008 at 11:33 am

    It is true, that democrats are traditionally very proponents of protectionist ideals (but not all are, Bill Clinton was a strong supporter of NAFTA), look where the democrat demographic sits: middle and lower classes, minorities, general blue collar workers. The people who lose their jobs when, under NAFTA, the production of some American good gets moved to Mexico (or any other country). Sure, the US & Mexican economies get more than they could have produced individually, but the people who benefit directly and most visibly from that are the ones who run the businesses, the upper classes, the Republicans, not the democratic workers in a factory that just got shut down who now have to pay less for their product but have no money with which to pay less because they are unemployed.

  3. Shanaon 02 Apr 2008 at 10:23 am

    People *should* be able believe everything candidates say, but that's just not the case. Based on what I've read here, if one of the two democrats were to win the presidency, I believe there would be more economic trouble because of their protectionist views and trade issues.

    Democrats are always about "hope" and "change" (whether they elaborate on what's going to change or not or how they're going to do it). They are also about higher taxes…which leds to less consumer spending which leads to…etc.

  4. Maxon 07 Nov 2009 at 6:51 am

    I do believe that having voters believe everything is not a positive aspect of our society. A president is not able to keep all the promises made during election time, because it is either too overwhelming, or even impossible to undertake.

    Hillybama, should they get into office, would lead to economic warfares between nations if they go berserk on tariffs. Not only do tariffs increase the price for domestic populations, eradicating purchasing power, but they will entail tariffs placed on other American products, that will lead to a number of tariffs being placed upon anything possible. Even glossy paper for packaging.

    This will not really lead America into isolation, because if a vital import for Americans has been tariffed, rendering life impossible, Hillybama will have to cut some tariffs in order to get that good to their population at lower prices. At least, that is what I believe.

    No one should be afraid of this change or hope, but not fully trusting. Not every tariff, however much it might profit American workers in the short run, will have some negative effect in the long run.