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Expert Witness
MYTHS ABOUT TRADE
Expert Witness features top thinkers in various disciplines discussing the journalistic coverage of their world. Here the subject is global trade, and Robert E. Litan is interviewed by Bruce Stokes, who writes the Economic Interests column, on trade and international economics, for National Journal.
* Why was the press caught off guard by the vehement anti-globalization demonstrations in Seattle last December at the meeting of the World Trade Organization (WTO)?
It wasn't just the press. The Clinton administration, the local authorities, and probably most of the delegations that came to the meeting were all caught off guard. The reason is not hard to understand. Historically, trade negotiations are the ultimate in "inside baseball" technical discussions about often-obscure border restrictions against various goods and services. The subjects of many trade disputes over the years -- bananas, baseball bats, flowers, and so on -- are often more the subjects of jokes than protests.
Several factors combined to make the Seattle meeting a very different affair. First, the WTO has come to represent -- for many nongovernmental organizations, labor unions, and citizens in different countries, not just the United States -- a threat to local decision-making. The WTO looks to these groups and individuals like an economic and regulatory United Nations, and not a UN that seems to talk and talk, but a supra-national body that actually seems to regulate affairs of individual countries.
Of course, this isn't true. All the WTO can do is decide trade disputes and allow the winning countries to impose limited trade sanctions against the losing countries, which still have the freedom to act as they have before and often do so. More broadly, the WTO is simply a negotiating forum for nations of the world to reduce barriers to trade that impede economic growth, and thus the advancement of living standards in all countries, especially in less developed countries, that many of the protesters claim they want to promote.
But that is not what the protesters believe, and I am not confident that hours of patient explanation by economists and other policy makers of the virtues of cross-border trade and investment will change their minds. In part, I think this is because of the second contributing factor to the Seattle protests and likely continuing protests at other such meetings: a floating anxiety about the pace of change in the world, which is fueled by technology, the Internet, and the like. For many people, the high-tech revolution has been a godsend, minting riches at a faster pace than ever seemed possible. But for others, those who lack the skills to thrive in the "new economy," the quickening pace of change is a threat and only reminds them of how they can't keep up. Those who are threatened know they can't stop technology, but they can slow down trade and investment liberalization -- and Seattle proved them right.
* Current press coverage of trade is centered on the congressional battle over granting permanent normal trade relations to China as part of letting China into the WTO. Any observations on how this issue is being covered?
The press coverage of China, as well as most of the attention of political leaders, has been concentrated on China's saber rattling over Taiwan and what impact this may have on the prospects for House passage of legislation granting normal trade relations (NTR) to China (Senate passage being taken for granted). This is understandable given the political realities. At the same time, China's admission to the WTO would be a watershed event.
* You wrote in your book Globaphobia [co-authored with Gary Burtless, Robert Z. Lawrence, and Robert J. Shapiro] that "the overwhelming weight of the evidence suggests that attempts to reverse the tide toward increasing globalization would harm the interests of the great majority of people in the United States and elsewhere around the world." This positive case for globalization often gets short shrift in the media. Why?
The classic problem with supporting free trade is that the benefits of open markets are distributed widely throughout the population, in imperceptible ways that consumers cannot touch and feel, while the costs -- in the form of layoffs -- are concentrated and highly visible. Under these circumstances, it is actually quite surprising how much support for free trade actually exists.
The reason for that support is that exporters in particular have a strong interest in maintaining open markets here because otherwise they become victims of foreign retaliation. This is all well and good. But if the only interests supporting free trade are exporters, then freer trade ends up being defended in a mercantilist fashion. This explains the prevailing ethos that "imports are bad, exports are good."
Any economist knows the fallacy in this view, of course. Forget international trade for a moment and just think about domestic transactions. When each of us goes to the grocery store, we "import" food, using the proceeds of our labor, which we "export" to our employers. Most of us, I suspect, would just as soon export less -- that is, work less -- and receive the same or even a larger amount of food from the store. The same holds true in the international arena. It's good to buy things, and better yet if we can get them cheaply. Open trade helps make this possible.
President Clinton, finally, after the Seattle debacle, made a strong economic defense of imports. He pointed to the savings the average family receives from having access to foreign goods, which according to the USTR [U.S. Trade Representative's office], are roughly $3,000 per year. I don't see many tax-cut packages with these kind of benefits. The media should follow up this story line by focusing on the costs of remaining protection -- for example, existing textile and apparel quotas or tariffs -- especially their impact on Americans with low incomes.
* What stories about globalization are journalists not writing that they should, why should they write them, and, most important, what is the hook to make them interesting and relevant to the news of the day?
I would suggest two additional stories. One is how many small businesses rely on exports, not just directly, but indirectly as suppliers to the major exporters, such as Boeing and Caterpillar. This kind of story brings trade down more to Main Street and demonstrates that it's not just the Fortune 500 that cares about liberalized trade.
A second story that is important to pursue -- in light of the growing conventional wisdom in this country that trade agreements must somehow be tied to agreements on labor and environmental standards -- is to explore why less developed countries take such a different view. These countries don't understand how a rich country like the United States, with record low unemployment and a record high stock market, can reverse course. Not after over fifty years of being open to goods from all countries, especially developing countries, to whom we historically have given preferential access to our market.
* The portion of the U.S. economy derived from trade has more than doubled since 1970. How would you assess the coverage of this dramatic development?
I don't believe this development has been covered much at all. Indeed, to the extent trade gets any coverage, it is usually in connection with the trade deficit, or tied to the alleged loss of jobs in some particular plant or company.
The monthly trade deficit number story used to have considerable impact, fueling ups and downs in political sentiment toward freer trade. The one fortunate development in recent years is that this story has lost its political punch. The trade deficit reflects fundamental macroeconomic factors at work, but the main reason Americans seem to be tuned out to trade numbers is that they are too busy enjoying the continuing economic good times.
In contrast, stories about job losses involving particular plants or downsizings at particular companies still seem to get some play. This happens especially when there are displaced workers who can credibly argue that their misfortune is due to a sudden rise in imports, as steelworkers did during the Asian crisis, or because the relevant company has moved its plant off-shore. Rarely in these stories, however, does the press dig further or put the story in a larger context -- showing that the lion's share of worker displacement is due to factors other than trade.
Speaking of firms threatening to pack their plants off to Mexico, some of the alleged worst abuses blamed on trade take place far from the press's prying eyes: in corporate boardrooms. Any thoughts about improving that coverage?
I'm aware that a number of firms have used the threat of moving production off-shore as a way to keep their workers' wages in line. But again, the press needs to dig deeper into assertions that these threats are what have done the trick. At the end of the day, if threats of moving were keeping wages down, one would expect to see labor's share of national income going down. But that simply hasn't happened.
* The American public is ambivalent on trade issues, with a majority telling pollsters that they support free trade, but many also having deep reservations about the North American Free Trade Agreement (NAFTA) or trade with China. Is our press coverage doing justice to this ambivalence?
You're right about the ambivalence, because as consumers, many Americans recognize that they're better off with free trade, as I argued earlier. But as workers, they're nervous they'll get displaced. Here, by using concrete examples, is where the press can do a better job of reporting to the anxious public. And it is still surprisingly anxious, despite a thirty-year low in the unemployment rate. In most instances, the major cause of worker disruption is not trade. After all, imports only account for about 15 percent of GDP. And that share probably overstates their contribution to job churning. The three dominant factors behind job losses are changes in consumer tastes -- with people shifting from one brand to the other, within the same industry, or between goods and services of different industries; disruptions due to long-needed deregulation of some industries, transportation being a notable example; and changes in technology. What happened to all the workers in the encyclopedia industry when computers and CD-ROMs came along? They disappeared. There are many other stories like that involving e-mail, word processing, and so forth.
The public needs to understand that in a dynamic, competitive economy there is a constant Schumpeterian process of creative destruction that is unstoppable. Blaming trade is not the answer *
Robert E. Litan, both an attorney and an economist, is vice president and director of the economic studies program at the Brookings Institute, a Washington-based think tank. He spent much of the last decade in government service: from 1993 to 1995 he was deputy assistant attorney general in charge of civil antitrust litigation and regulatory issues in the Department of Justice; and in 1995 and 1996 he was associate director of the Office of Management and Budget. Litan is known in Washington for his creative policy proposals in the face of complicated national issues. His insurance-for-displaced workers scheme was embraced this year by Democratic presidential candidate Bill Bradley. The book he co-authored, Globaphobia, was widely praised as a cogent and literary exposition of the case for free trade. LItan has a doctorate in economics from Yale University and a law degree from Yale. He received his undergraduate degree in economics from the Wharton School of Finance at the University of Pennsylvania.
