Dani on Hillary and trade

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Dani Rodrik has two interesting posts on what Hillary Clinton told the FT last week about trade policy, and on reactions (including mine) to her remarks. (The interview with Hillary is here. My first reaction to it is here. The FT also ran a disapproving editorial.) Dani writes:

Hillary Clinton has some generally sensible things to say on trade in today's FT, for which Clive Crook takes her to task. Basically, Hillary's point is that we need to take a breather from negotiating trade agreements on the accepted model, and think our way through what a new set of trade relationships might look like for the 21st century...

Clive Crook thinks this is all misguided and reflects a tendency for the Democrats to jettison multilateralism in favor of unilateral (read protectionist) trade policies.



I would agree with Clive that giving up multilateralism would be a bad idea. But I read Hillary's interview differently, as an argument in favor of a renewed set of multilateral rules...



The real risk facing globalization today is not that markets are not open enough, but that the political support for the existing set of rules is eroding to the point where it becomes difficult to maintain the openness we have...



UPDATE: And this whole thing about what Paul Samuelson said and meant and whose position it provides support for is such a red-herring.  Hillary should not have brought up Samuelson, but I wish her critics would stick to the issues instead of chiding her for using his name in support.

Today Dani returns to the topic, responding to Peter Mandelson, the EU trade commissioner, who was quoted this morning in the FT criticising what Hillary said. Dani's response:

Here is what I do not understand.  Why is it that anyone who says that the gains from the next trade agreement are not huge, that there are real social and distributional issues we need to confront before we strike the next trade deal, and that perhaps we need to rethink the basis of the multilateral trade regime in light of the severe legitimacy problems which it has run into--all true propositions--is immediately branded as a protectionist who wants to set the clock back?...

What is outlandish about all of this is that no respectable economic model suggests the completion of Doha will add more than 1 percent to world GDP some ten years out--and this under the most favorable circumstances. The mental model that people like Mandelson seem to have is that the moment you take a breather on trade agreements, the whole world trade regime will collapse.  There is little to justify this "bicycle theory" at the present time.      



Dani is right of course that having doubts about the current multilateral arrangements does not make you a protectionist. Raising trade barriers, or turning your face against opportunities to lower them, is what makes you a protectionist. I also agree with Dani that taking a breather on trade agreements does not mean that the global trade regime will collapse. But collapse is an extreme scenario. The danger is not collapse, but erosion.



Dani argues that to maintain the openness we have, we must improve the legitimacy of the existing arrangements and build political support for liberal trade. Yet again, we agree. The issue that divides us is whether Hillary Clinton's call for a time-out on trade advances or retards those goals.



Acknowledging that there can be winners and losers from trade, and developing better kinds of social insurance to ease the strain, makes sense. I am very much for that. But those policies do not envisage restrictions on trade. It is very hard to maintain that (a) trade is good for us in the aggregate and (b) it makes sense to go slow on trade liberalisation. If you are going to argue (b), before long you will find yourself failing to mention (a). And once you have forgotten (a), or decided it might actually be wrong, good luck in trying to "maintain the openness we have".



If liberal trade is not good for America in the aggregate, why even try to maintain it? Why not join forces with outright protectionists and pursue the "fair trade" agenda without inhibition? Hillary's reference to the Samuelson article is no red herring. What she and others (incorrectly) drew from Samuelson's assault on pro-trade pieties is precisely that liberal trade may no longer be good for us in the aggregate, because, as she said, this is the 21st century, and comparative advantage is so last season.



Acknowledge and respond to legitimate doubts about the virtues of liberal trade. But where the fears are exaggerated or wrong, our political leaders should say so. Unlike Dani, I think it is very dangerous to concede this intellectual ground. Once the US decides that liberal trade does not serve its collective interest--and Hillary, in effect, is proposing a time-out to think about this--the openness we have is indeed at risk.

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