November 01, 2016
The promoters of “free trade” are feeling frustrated these days. Their trade deals are facing large-scale public opposition everywhere. This opposition almost derailed a trade deal between Canada and the European Union. In the United States, both major party candidates are openly opposed to the Trans-Pacific Partnership (TPP).
The NYT recognizes some of the problems in recent trade pacts, but still badly misrepresents the key issues in an editorial on trade. The misrepresentation picks up a recent theme of the selective protectionists (a.k.a. “free traders”). It claims that trade has been falling:
“The total value of American imports and exports fell by more than $200 billion last year; they’ve fallen by an additional $470 billion in the first nine months of this year. Sluggish growth is both a cause and a result of this slowdown.”
Numbers fans everywhere know the trick here. As I pointed out yesterday, the reason that the value of U.S. trade fell last year was the drop in the prcie of oil and commodities. The real value of trade rose by $2.3 billion from 2014 to 2015. This is admittedly slow growth, but it is not the same thing as the advertised decline. (These data are available from Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.6.)
The editorial compounds the error by bringing in data from 2016. It’s true the nominal value of trade fell by $163 billion (not the $470 billion advertised) in the first nine months of 2016, but if we adjust for falling prices trade actually rose by $63 billion.
But this aside, it’s time to stop honoring the lies by the promoters of trade deals. These deals have nothing to do with free trade. They are designed to redistribute income upward.
A major feature of the TPP is stronger and longer patent and copyright and related protections. These forms of protection are protectionism. (Sorry folks, it doesn’t matter if your friends benefit from them. They are still protectionism.) If a patent raised the cost of a drug like Sovaldi from its $200 free market price to its $84,000 list price in the United States, it has the same impact as a 40,000 percent tariff. The market doesn’t care that trade negotiators call it a patent. The resulting economic waste and corruption are the same. Trade deals that lead to stronger and longer patent and copyright protection are protectionist; end of story.
The other important place that these deals are protectionist is with regard to highly paid professional services. While these deals are explicitly crafted to put steelworkers and textile workers in direct competition with the lowest paid workers in the world, they maintain the protections that prevent highly paid professionals from facing similar competition.
Foreign-trained doctors cannot practice in the United States unless they complete a U.S. residency program. No one can think that the only way for a person to be a competent doctor is if they complete a U.S. residency program. There are plenty of competent doctors in Germany, Canada, and other countries.
As a result of this barrier, our doctors are paid on average more than $250,000 a year, twice the average in other wealthy countries, putting them in the top one percent of wage earners. This protectionism costs us roughly $100 billion in higher health care costs compared with a situation where they were paid the same as their counterparts in other wealthy countries. (Note, that we can put in place a system in which developing countries could be reimbursed for the education of doctors and other professionals who came to the United States. This reimbursement could allow them to train two or three professionals for every one that came to the United States, ensuring that they also benefited from trade.)
While the protectionism for other professions may not be as strict as for doctors, our trade deals certainly have not been focused on removing the barriers that maintain their pay in the same way as they have been focused on pushing down the wages of manufacturing workers and workers with less education generally.
In other words, the NYT and other policy types are unhappy that there is little support for trade deals designed to redistribute income from them to the rich. This story has nothing to do with free trade, the problem is that most people would prefer more income to shifting their income to the rich. (Yes, this is the topic of my new book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, which is available at no cost.)
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