Economists almost unanimous—rising trade barriers not good
The WTO put out its latest “Trade monitoring report” this week. The news is good and bad. And bad and good and good and bad. Take your pick.
The number of new trade restrictive measures, which was running at nine per month in the last report, is now up to 11. That’s bad. On the other hand, the number of new trade-facilitating measures was running at 13, up from 11, which is good.
On still the other hand, trade coverage of the trade-facilitating measures was US$107.3 billion, which was greater than that for the coverage of trade-restricting measures ($US84.5 billion). So that’s good, too.
Except that in the previous report coverage for trade-facilitating measures was almost twice as great as for trade-restricting measures. So the more recent numbers are actually bad. Finally (how many “other hands” are we at now, a whole poker table’s worth?) the report was for the period October 2017 to May 2018, so it hasn’t yet taken account of the most recent escalation of the Trump administration’s trade war with basically the entire world.
So that’s bad.
One final point. In 2015 trade-restrictive measures were running at fully 19 per month, so the 11 we’ve been at recently may be manageable. But—you knew there was a but—trade-facilitating measures were at 21 per month in 2015, much more than now. If you want to get depressed about these numbers, go right ahead. If you want to see some reason for hope, well, that’s possible too. The WTO itself is worried:
“[F]urther escalation could carry potentially large risks for the [multilateral trading] system itself. Its resilience and functionality in the face of these challenges will depend on each and every one of its Members. WTO Members must use all means at their disposal to de-escalate the situation and promote further trade recovery.”
Some other trade numbers issued this week aren’t at all ambiguous. I’ve written before about the University of Chicago Booth School of Business’ “IGM Forum,” a sounding-board of 44 top-tier American academic economists. The question for the economists this week was “Because global supply chains are more important now, import tariffs are likely substantially more costly than they would have been 25 years ago.” Agree or disagree? Nine of the economists agreed strongly. Twenty-four agreed. Four were uncertain. One had no opinion—not even uncertainty, apparently—and four did not answer. In sum, no economist disagreed with this statement; five weren’t certain or didn’t have an opinion; 33 either agreed or agreed strongly.
The economists didn’t provide a lot of elaboration. The University of Chicago’s Austan Goolsbee, who was on Barack Obama’s Council of Economic Advisers, wrote: “and they were terrible then,” i.e., 25 years ago, referring to tariffs. Several economists provided links to papers that have demonstrated just how interconnected modern economies are. Some have used the aftermath of natural disasters as an independent test of that. Natural disasters are acts of God, presumably, so there’s no possibility of causality feedback loops from economic linkages to natural disasters that might muddy the observed correlation between the disasters and the economic mayhem they apparently cause.
Judith Chevalier of Yale linked to a paper by a new PhD from Columbia University who looked at linkages between U.S. firms and Chinese suppliers. It concluded that, once the effect of cheaper intermediate inputs is taken into account, trade with China may actually have increased manufacturing employment in the U.S. “Contrary to conventional wisdom, firms exposed to greater Chinese imports created more manufacturing and non-manufacturing jobs than non-exposed firms.”
I’m not sure whether that conclusion is correct. Economics papers are complex these days, with lots of theoretical and econometric subtleties, so it’s not always easy to know just how much confidence to have in their results. But if it’s correct, it suggests that if current U.S. trade policy leads to permanently higher trade barriers, as many people feel, that will be completely self-defeating. It won’t even create the higher manufacturing employment that is its declared purpose.
Is current U.S. trade policy self-defeating? That would be another good question for the IGM Forum.
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