by Michael Stumo
Last Wednesday (10/5/16) I was a guest on BBC World Service with globalist economists Jeffrey Sachs and Pankaj Ghemawat discussing the future of trade and globalization.
I was invited as a presumed nationalist/protectionist counterpoint to the other two guests. Whlie I was certainly a counterpoint, our CPA view did not fit into the protectionist framework. (As of this writing, the show has not aired. I’ll provide a link when it does).
Dr. Ghemawat made his name, in part, as an economist who argues that the world is neither truly global nor truly local. This is true as far as it goes. He contrasts his view with that of NY Times contributor Thomas Friedman who argued in his book, The World is Flat, that we are fully globalized now.
Dr. Sachs is an economist at Columbia University who is considered a leading expert on economic development and the fight against poverty.
While both Ghemawat and Sachs had reservations about how trade and globalization are harming workers, they proposed nothing to solve the problem. In essence, they said “I feel your pain, but let’s keep doing the same thing with a few unspecified tweaks.”
I argued that the global trade imbalances, with the US and the UK as persistent deficit countries, illustrated how the system is failing. Asian countries use strong nationalist industrial strategies to game the trading system to the detriment of countries like the US who have a laissez-faire – i.e. no strategy – approach. I also argued that oversupply of products and labor was a major problem and the US consumer was being relied upon to soak up that excess global oversupply. Germany, China, Japan, Mexico and other countries over produce in relation to their countries’ consumption and thus rely upon the US consumer. But our US producers are displaced causing depressed growth and job losses.
This clearly agitated the other guests. They are used to having their opinions accepted with nodding heads of understanding and agreement. Faced with my arguments, they flipped from being detached examiners of globalization to ardent defenders of the current trading system. It was as if I challenged their God.
Sachs argued that pointing fingers at other countries was wrong. Trade liberalization has lifted folks out of poverty. The problem is the multinational corporations. To which I pointed out more specifically the state-capitalism of China and the nationalist industrial policy of Japan which drastically advantages their companies in relation to US and other private companies. He dismissed the point without specifying why.
Ghemawat said that the Netherlands trade more than the US in proportion to its GDP and their income inequality problem is not like the US. But of course that requires the US to construct a very strong redistributive welfare state which we simply won’t be doing. The contradiction of promoting free trade so that a welfare state is required was not explored.
Ghemawat also played the concerned parent acknowledging the “anger” of those who have their jobs displaced. His remedy was to do nothing but further explain to people how they can benefit from the global trading system to address that anger.
With a playfully provocative response, I said that the problem is not “anger management”. We don’t need some international psychologists to fix an emotional problem. There is a real issue of job loss, wage loss and community destruction in the many regions of the US and other developed countries where the cosmopolitan elite do not live. This impact is so widespread that the globalists can no longer discount it because these folks are voting in large numbers.
The show illustrated, I hope, the utter wrongheadedness of the mainstream international economics profession and their followers. They don’t think trade cheating matters, even after I pointed out the WTO system defines trade cheating and allows targeted tariffs to fix it. I further pointed out that those countries facing enforcement actions actually agreed not to engage in those unfair activities when they ratified the agreements.
Sachs and Ghemawat don’t think the trade mismatch between aggressive mercantilist countries and the US matters. Indeed, the WTO recently attacked countries like the US for enforcing trade rules with targeted duties and tariffs, the very remedies the WTO allows in response to practices the WTO agreement specifically prohibits.
Sachs and Ghemawat believe trade imbalances either don’t matter or are caused by the US national savings rate being low. I won’t delve into this wonky topic except to say that many economists believe a low savings rate causes trade deficits. The truth is that low national savings rates are the result of trade deficits which are the result of a system that tolerates trade cheating or failures of the trading system. This is an important topic for further academic exploration because the economists are generally on another planet.
I’ll close by saying again how the Global Trade Priesthood is very emotionally invested in their fake world building. It is a Cosmopolitan Tribe that protects their own and reinforces each other’s beliefs at cocktail parties under penalty of being cast out of the tribe. They profess concern for the “working man” but vigorously resist attempts to fix problems. There were multiple attempts to cast me as “anti-trade” or a protectionist as they became more emotionally agitated. Their easy labels did not stick because we favor, as I explained, better trade rules to improve outcomes and prevent sovereignty losses. A reasonable position that fits with the world we live in.
Their extreme positions were coated in syrupy, reassuring language which usually works to lull the crowd. We must increasingly strip away that cover to continue making progress towards trade policy that works for real people.