Since then, mainstream economists’ disenchantment with the old near- certainties has continued to build, and at a gathering rate. Top-tier orthodox economists such as William Baumol, Alan Blinder, Paul Krugman, and Brad DeLong—invariably prefacing the point with the words “Although I’m no protectionist—have expressed new fears about what imports and offshoring are doing to living standards. Lawrence Summers, Bill Clinton’s treasury secretary from 1999 to 2001 (and before that a revered mainstream scholar), is the most surprising new doubter. In a July Financial Times forum, he wrote, “It is not even altogether clear that [globalization] benefits America in aggregate.”
Why has this happened? What has changed? I wish I could tell you. No new theoretical insight has emerged to challenge the old pro-trade presumption. Samuelson’s 2004 article was mistaken for that in some quarters, but was actually a muddled combination of erroneous new theory on offshoring and uncontested old theory about monopoly power in global markets. The novel part was conclusively rubbished by Columbia’s Arvind Panagariya, who showed that Samuelson had got his offshoring model plain wrong. So far, anyway, nobody has explained why offshoring needs a new theory; it is just another kind of trade. The old part—the idea that the United States might see its income fall if trade drives down the prices of its exports—was already encompassed by the earlier consensus.
Jagdish Bhagwati, a preeminent trade scholar, also of Columbia, helped to theorize this danger in the 1950s. As he explained, “immiserizing” trade can arise only under quite unusual circumstances. The principal benefit to a country from openness to trade is cheaper imports. In the ordinary case, additional imports may put some domestic producers out of business, but the displaced capital and labor get applied to more efficient new uses, so the economy as a whole still gains. Suppose, however, that the country had previously been collecting some monopoly profits on its exports. If new trade drives up its production of those goods, their price might fall—and in theory, they could fall by enough to outweigh the gains from cheaper imports. In practical terms, this is an unimportant exception. Bhagwati himself remains a trenchant defender of liberal trade.
"When the facts change, I change my mind,” said John Maynard Keynes. “What do you do, sir?” Theory aside, the past decade has supplied a lot of new facts—not least, rising inequality and a protracted stagnation of middle-class earnings. It seems natural to blame the quickening pace of globalization for this. Again, however, no careful examination of the new facts on earnings shows trade or offshoring to be more than minor culprits. When you look closely, the shifts in earnings and the shifts in trade fail to marry up: The periods when imports have risen most rapidly are not the periods when wage pressures have been most intense. Studies suggest that labor-saving technology is a much more powerful force. No empirical work even comes close to supporting the claim that globalization is failing to benefit America in the aggregate. Countless studies have shown, and continue to show, the benefits of trade. Yes, some industries have shrunk or disappeared because of trade, and their workers have suffered the consequences; the pace of this change has probably quickened lately; better policies to insure and compensate the victims are surely called for. But to say this is very different from supposing that open markets hurt the United States as a whole.