The unpopularity of "free trade" in the USA
Liberal blogger Matthew Yglesias comments on a recent NBC/WSJ poll that reveals that 53% of Americans believe that free trade arrangements with other countries have hurt US jobs, up from 46% three years ago. Interestingly the poll reveals that
It should also be noted that by many measures most Americans work in non-traded goods and service sectors where jobs are not likely to be directly threatened by freer trade. Trade might be expected to raise their real incomes by removing tariffs and hence lowering of the prices of many goods they consume.
Yglesias view is that a good part of the widespread anti-free trade sentiment is due to how the issues are framed by the media and politicians. People focus on job losses in a few sectors and forget or fail to understand how freer trade also brings down the price of consumption goods. He points to a recent study of US trade tariffs (import taxes) that reveals that much higher trade tariffs (i.e. much higher consumption taxes) are imposed on the typically cheaper and more labor-intensive goods that are much more heavily consumed by lower income households. Much lower tariffs are imposed on higher quality and expensive goods that figure more importantly in the budgets of higher income households, so the entire tariff system turns out to be highly regressive (i.e. taxing the poor more than the rich). A few examples:
The puzzle then is why not? Is it that Americans don't understand the economics of trade, or is it that they're onto something that the economists don't understand or know how to model?
[w]hile 65 percent of union members say free trade has hurt the U.S., so do 61 percent of Tea Party sympathizers.Why such widespread sentiment against free trade arrangements? The Stolper-Samuelson theorem predicts that (in a static world at least) there will be clear losers from free trade arrangements in the USA and that losses are likely to fall most heavily on lower-skilled workers and those tied to (specific factors in) declining (i.e. labor-intensive) industries. It is perfectly rational for these individuals to oppose trade liberalization to defend their incomes. But the same theory suggests others should gain, particularly better skilled workers. Yet puzzlingly (for this theory) the same poll suggests the strongest rises in anti-free trade sentiment in the past years took place amongst people earning more than $75000!
It should also be noted that by many measures most Americans work in non-traded goods and service sectors where jobs are not likely to be directly threatened by freer trade. Trade might be expected to raise their real incomes by removing tariffs and hence lowering of the prices of many goods they consume.
Yglesias view is that a good part of the widespread anti-free trade sentiment is due to how the issues are framed by the media and politicians. People focus on job losses in a few sectors and forget or fail to understand how freer trade also brings down the price of consumption goods. He points to a recent study of US trade tariffs (import taxes) that reveals that much higher trade tariffs (i.e. much higher consumption taxes) are imposed on the typically cheaper and more labor-intensive goods that are much more heavily consumed by lower income households. Much lower tariffs are imposed on higher quality and expensive goods that figure more importantly in the budgets of higher income households, so the entire tariff system turns out to be highly regressive (i.e. taxing the poor more than the rich). A few examples:
the tariff rate on a cashmere sweater is 4 percent; the rate for one made of much cheaper acrylic is 32 percent... The tariff rate on a snakeskin handbag is just over 5 percent but climbs to 16 percent for one made of canvas. ... Drinking glasses that cost more than $5 each have a tariff of 3 percent, while those that cost less than 30 cents each have a rate of 28.5 percent...This suggests that elimination of tariffs should bring down consumption taxes on the poor much more rapidly than consumption taxes on the rich and that therefore that there ought to be a larger constituency in favor of freer trade.
The puzzle then is why not? Is it that Americans don't understand the economics of trade, or is it that they're onto something that the economists don't understand or know how to model?
Comments