Monday , August 21 2017
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Thinking straight about fair trade

Summary:
In the previous entry, I discussed the real-world distributional effects of trade agreements, in the specific case of NAFTA. Why should we care about such redistribution and how should we deal with it? It is useful to distinguish between two different versions of an argument as to why trade may be problematic from a social or political perspective. Trade is problematic because it redistributes income. Trade is problematic because it violates norms and understandings embodied in our institutional arrangements – it undercuts domestic social bargains. The first case is no different than a million other things in a market economy that can have distributional implications. It does not in general require that we target trade specifically. But the second case is different, and may require trade remedies. I associate the valid core of fair-trade or social-dumping concerns with this particular possibility. I elaborate on this argument here. Here is a teaser: Economists like to claim that the purpose of free trade is to eliminate barriers that impair the efficient global allocation of resources, while helping some of the world’s poorest people. It’s an argument undermined by a simple thought experiment.

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In the previous entry, I discussed the real-world distributional effects of trade agreements, in the specific case of NAFTA. Why should we care about such redistribution and how should we deal with it?

It is useful to distinguish between two different versions of an argument as to why trade may be problematic from a social or political perspective.

  1. Trade is problematic because it redistributes income.
  2. Trade is problematic because it violates norms and understandings embodied in our institutional arrangements – it undercuts domestic social bargains.

The first case is no different than a million other things in a market economy that can have distributional implications. It does not in general require that we target trade specifically.

But the second case is different, and may require trade remedies. I associate the valid core of fair-trade or social-dumping concerns with this particular possibility.

I elaborate on this argument here. Here is a teaser:

Economists like to claim that the purpose of free trade is to eliminate barriers that impair the efficient global allocation of resources, while helping some of the world’s poorest people. It’s an argument undermined by a simple thought experiment. Suppose we wiped the slate clean of the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, and other similar trade deals, and the world’s trade negotiators banged their heads to figure out the best way of achieving their stated goals. What would they be negotiating about?

Tariffs? Rules on intellectual property rights? Investment regulations?

Read the rest here.

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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