When US Market Access is No Longer a Trump Card [feedly]

When US Market Access is No Longer a Trump Card
http://conversableeconomist.blogspot.com/2019/04/when-us-market-access-is-no-longer.html

When the US economy was a larger share of the world economy, then access to the US market meant more. For example, World Bank statistics say that the US economy was 40% of the entire world economy in 1960, but is now about 24%. The main source of growth in the world economy for the foreseeable future will be in emerging markets.

For a sense of the shift, consider this figure from chapter 4 of the most recentWorld Economic Outlook report, published by the IMF (April 2019). The lines in the figure show the trade flows between countries that are at least 1% of total world GDP. The size of the dots for each country is proportionate to the country's GDP.

In 1995, you can see international trade revolving around the United States, with another hub of trade happening in Europe and a third hub focused around Japan.  Trade between the US and China shows up on the figure, but China did not have trade flows greater than 1% of world GDP with any country other than the US.

The picture is rather different in 2015. The US remains an international hub for trade. Germany remains a hub as well, although fewer of its trade flows now exceed 1% of world GDP. And China has clearly become a hub of central importance in Asia.

The patterns of trade have also shifted toward greater use of global value chains--that is, intermediate products that are shipped across national borders at least once, and often multiple times, before they become final products. Here's the overall pattern since 1995 of falling tariffs and rising participation in global value chains for the world economy as a whole.

Several decades ago, emerging markets around the world worried about having access to selling in US and European markets, and this market access could be used by the US and European nations as a bargaining chip in economic treaties and more broadly in international relations. Looking ahead, US production is now more tied into global value chains, and the long-term growth of US manufacturing is going to rely more heavily on sales to markets outside the United States.

For example, if one is concerned about the future of the US car industry, the US now produces about 7% of the world's cars in 2015, and about 22% of the world's trucks. The future growth of car consumption is going to be primarily outside the US economy. For the health and long-term growth of the US car business, the possibility of unfair imports into the US economy matters a lot less than the access of US car producers to selling in the rest of the world economy.

The interconnectedness of global value chains means that General Motors already produces more cars in China than it does in the United States. In fact, sales of US multinationals now producing in China are already twice as high as exports from the US to China. Again, the long-term health of many US manufacturers is going to be based on their ability to participate in international value chains and in overseas production.

Although what caught my eye in this chapter of the World Economic Outlookreport was the shifting patterns of world trade, the main emphases of the chapter are on other themes that will come as no surprise to faithful readers of this blog.  One main theme is that shifts in bilateral and overall trade deficits are the result of macroeconomic factors, not the outcome of trade negotiations, a theme I've harped on here (for example, here, here, and here).

The IMF report also offers calculations that higher tariffs between the US and China will cause economic losses for both sides. From the IMF report:

US–China trade, which falls by 25–30 percent in the short term (GIMF) and somewhere between 30 percent and 70 percent over the long term, depending on the
model and the direction of trade. The decrease in external demand leads to a decline in total exports and in GDP in both countries. Annual real GDP losses range from –0.3 percent to –0.6 percent for the United States and from –0.5 percent to –1.5 percent for China ... Finally, although the US–China bilateral trade deficit is reduced, there is no economically significant change in each country's multilateral trade balance.

Some advocates of higher tariffs take comfort in noting that the estimated losses to China's economy are bigger than the losses to the US economy.  Yes, but it's losses all around! As the 21st century economy evolves, the most important issues for US producers are going to involve their ability to
compete in unfettered ways in the increasingly important markets outside the US.  

 -- via my feedly newsfeed

Unions urge Democrats to focus on kitchen table economics

Unions urge Democrats to focus on kitchen table economics  

By Michelle L. Price and Nicholas Riccardi | AP April 15

LAS VEGAS — Ardently liberal, pro-labor and anti-corporate cash, the field of Democrats running for president may look like a union activist's dream. But some key labor leaders are starting to worry about the topics dominating the 2020 conversation.

The candidates are spending too much time talking about esoteric issues like the Senate filibuster and the composition of the Supreme Court and not enough time speaking the language of workers, several union officials said. Those ideas may excite progressive activists, they said, but they risk alienating working-class voters.

"They've got to pay attention to kitchen table economics," said Ted Pappageorge, president of the Las Vegas Culinary Union that represents 60,000 hotel and casino workers. "We don't quite see that."

Terry McGowan, president of the International Union of Operating Engineers Local 139, in Wisconsin, said many of the issues driving the 2020 primary so far are distractions.

"The people that are into politics, the people who like sideshows, they're into that," he said, citing the debates over reparations for slavery and immigration as examples. "The masses just want to feed their families."

The unease may be an early warning sign for Democrats, who watched as many white, working-class voters, including many union members in key Rust Belt states, chose Trump three years ago. Democrats are hoping to win back some of those voters next year, a challenge that is made harder, some argue, by labor's struggle to build its membership and influence its rank and file. Democrats' early messages may not help, some said.

"You see where some of the party's being driven. It's no secret," said Rusty McAllister, executive secretary of the Nevada AFL-CIO.

McAllister pointed to "Medicare for all" — the health care proposal of choice for several candidates — as an example of Democrats' not seizing on labor's top priorities. Many unions already organized and fought for private health insurance for their members. "That's not something that I think that labor is as much focused on as some of the progressives are," McAllister said.

Such concerns — which stretched from the progressive-minded organizing halls of Nevada to the Rust Belt precincts — were typically focused on the conversation, not the candidates. The early 2020 primary has included detours into debates over the Senate filibuster, the composition of the Supreme Court and breaking up technology companies.

Ken Broadbent, business manager of the Pittsburgh-based Steamfitters Local 449, worried that Democrats are too focused on environmental plans like the Green New Deal, a blueprint for shifting the U.S. economy away from fossil fuels, and will neglect the importance of swing state Pennsylvania's rich natural gas deposits in creating jobs.

"Jobs is where we've got to keep things focused," Broadbent said.

To be sure, many unionists are excited about the presidential field. Contenders include liberal stalwarts like Vermont Sen. Bernie Sanders, whose campaign became the first in U.S. history with a unionized workforce, and Massachusetts Sen. Elizabeth Warren, who joined striking Stop & Shop workers on a picket line in New Hampshire on Friday. California Sen. Kamala Harris hired a top Service Employees International Union executive for her campaign and made her first proposal one to raise teacher's pay.

Former Vice President Joe Biden made clear that he plans to appeal to union workers, if he gets in the race. "You are coming back," he told the International Brotherhood of Electrical Workers last week. "We need you back."

Randi Weingarten, president of the American Federation of Teachers, said the competition in the crowded field has amplified workers voices and issues.

She noted that prominent presidential candidates quickly supported Los Angeles public school teachers when they struck in January. Warren, Sanders, Harris and New Jersey Sen. Cory Booker have all proposed various taxes on higher-earning families, a departure from most past Democratic hopefuls who have treaded carefully on the issue.

"It feels different than at other times," Weingarten said. "There is far more attention and focus on working people's economic needs."

Major endorsements are likely several months away, especially because the labor movement is treading carefully after complaints that its leadership was too quick to back Hillary Clinton in the 2016 primary over Sanders.

For labor, much is at stake. Despite Republican gains, particularly with trade union members, labor remains an essential part of the Democrats' coalition. Unions spent $169 million in 2018 on federal elections, largely on Democrats' behalf, according to the Center for Responsive Politics. Democrats won union workers by a strong 59%-39% margin in 2018, according to AP VoteCast, a national survey of the electorate.

But other big donors and — small, online ones, too — increasingly compete with labor's organizing muscle as key to Democratic victories. Activists on a broad array of issues, from gay rights to criminal justice, compete with unions for candidates' attention. And the labor movement itself is split on its priorities, with some pushing for a focus on trade while other who represent more diverse workforces want to zoom in on immigration.

All this comes as Republicans have pushed several state laws weakening organized labor. And, last year, the Supreme Court ruled that government workers can't be forced to contribute to the unions that represent them in collective bargaining, dealing a blow to public service union's pocketbooks.

As candidates court unions for endorsements, labor leaders say they are listening for a comeback plan.

Any proposal aimed at workers "must include ensuring the opportunity to join a union, no matter where you work, since that's the best way to raise wages, improve working conditions, create family-sustaining jobs and begin to fix our rigged economy and democracy," said SEIU president Mary Kay Henry.

At a conference of North America's Building Trades Unions in Washington on Wednesday, several Democratic contenders talked about outlawing so-called "right to work" laws that prevent unions from automatically deducting dues from members, said the group's president, Sean McGarvey. But, he added, he heard "very little about the actual structural changes to the National Labor Relations Act, or things they could put in place to give people a real free choice to join a union."

___

This story has been corrected to provide the correct name of the group North America's Building Trades Unions.

Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

--

John Case
Harpers Ferry, WV

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NYTimes.com: The Democratic Electorate on Twitter Is Not the Actual Democratic Electorate

Nate Cohen and company explore polling on support for "left" vs "moderate" positions on a wide range of political polling questions, and compare social media, i.e. Twitter, Democratic positions with "real world" positions from broader polling and exit polls from previous elections. Nate is a serious and innovative data scientist. This article is apparently also the foundation of Speaker Pelosi's critique of public perceptions of real political strength based on Congresswoman Alexandria Ocasio-Cortez Twitter followers. 

I think the data analysis in the article is important and expertly done. However, it also has a "just so" embedded narrative seeking to undermine or minimize Sanders, Warren, and Kamala Harris strengths. Nevermind TWitter, actual polling of the announced. candidates shows the leftward ones so far sharply outpolling the "moderate" ones. The data sets used are very rich, but there are many narratives that can built from it. 

For example the majority of observations show policy positioning is not the primary incentive at all. I think this is partly explained (but hard to quantify without a survey asking some better questions) by the preference many Americans have for character based assessments of candidates. "Character" can also mask serious social biases, like race or gender, or not, but it can dominate "rational" policy preferences among the great majority not schooled in public policy. "Mayor Pete" is gaining strength rapidly based on his gift of compelling narratives about values. He has not said a lot about policy yet. Obama's appeal had a large character component, a quality he respected throughout his presidency. It could be that AOC and Sanders popularity outpacing real interest in "left wing" positions is also character driven: both seem more honest and transparent than many others, whether you agree or disagree with everything they say.

I 

From The New York Times:

The Democratic Electorate on Twitter Is Not the Actual Democratic Electorate

A detailed look at the voters with the numbers to decide the 2020 Democratic nominee.

https://www.nytimes.com/interactive/2019/04/08/upshot/democratic-electorate-twitter-real-life.html

Thomas Piketty: Basic income in India [feedly]

Piketty on the importance of the India elections

Basic income in India
http://piketty.blog.lemonde.fr/2019/04/16/basic-income-in-india/#xtor=RSS-32280322

The biggest election in world history has just begun in India: there are over 900 million electors. It is often said that India learned the art of parliamentary democracy through contact with the British. The observation is not entirely false, provided that we add that India is now implementing this art on an unprecedented scale in a political community of 1.3 billion people, split along huge socio-cultural and linguistic divisions which in reality are extremely complex. Meanwhile the United Kingdom has considerably difficulty in remaining united at the level of the British Isles. Following in the steps of Ireland at the beginning of the 20th century, it may just possibly be Scotland's turn to leave the United Kingdom and its Parliament at this start of the 21st century. For its part, the European Union and its 500 million inhabitants have still not succeeded in setting up democratic rules for the adoption of the slightest communal tax and continue to grant a right of veto to Grand Duchies in which barely 0.1% of its citizens reside. Instead of explaining in learned fashion that nothing in this fine system can be changed, European leaders would be well advised to look at the Indian Union and its model of federal and parliamentary Republic.

Obviously not everything in the garden is rosy in the biggest democracy in the world. The country's development is marred by huge inequalities and poverty which is too slow in declining. One the principle innovations of the electoral campaign which is ending is the proposal made by the party in Congress to introduce a system of basic income, the NYAY (nyuntam aay yojana, minimum guaranteed income). The amount announced is 6,000 rupees per month and per household, or the equivalent of about 250 Euros in parity of purchasing power (3 times less at the current exchange rate), which is far from negligible in India (where the median income does not exceed 400 Euros per household). This system would apply to the poorest 20% of Indians. The cost would be considerable (a little over 1% of GDP) but not prohibitive.

As always with proposals of this type, it is important not to stop there and not take the basic income as a miracle solution or a final settlement. Setting up a fair distribution of wealth and a model for sustainable and equitable development, requires the backing of a total package of social, educational and fiscal measures, the basic income only being one element therein. As Nitin Bharti and Lucas Chancel have shown, public expenditure on health has stagnated at 1.3% of GDP between 2009-2013 and 2014-2018, and the investment in education even fell from 3.1% to 2.6%. A complex balance remains to be found between the reduction in monetary poverty and these social investments which condition the closing of the gap between India and China. China has found a way to mobilise greater resources to raise the level of training and health of the population as a whole.

The fact remains that the proposal by Congress has the merit of stressing the questions of redistribution and of going beyond mechanisms of 'quotas' and 'reservations'. True, these have enabled a fraction of the lower castes to access the university, public sector jobs and to hold elective offices but they are not sufficient. The biggest drawback of the proposal is that Congress has chosen to remain very discrete about its financing. This is a pity because it afforded an opportunity to rehabilitate the role of progressive taxation, and to definitely turn the page on its neo-liberal moment in the 1980s and 1990s. Above all it would have provided an occasion for more explicitly coming closer to the new alliance between the socialist parties and the lower castes (SP, BSP) who propose the creation of a federal tax of 2% on estates worth over 25 million Rupees (1 million Euros in parity of purchasing power), which would bring in the equivalent of the amounts required for the NYAY, and strengthen the progressivism of the federal income tax. Fundamentally, the real issue at stake in this election is the constitution in India of a left-wing coalition, both egalitarian and multi-cultural, the only coalition capable of beating the pro-business and anti-Muslim nationalism of the BJP. This time this may not be enough. The Congress, which was formerly the hegemonic party from the centre, is still led by the far from popular Rahul Gandhi (from the Nehru-Gandhi family) whereas the BJP had the sense to adopt Modi, for the first time a leader from humble origins. Congress fears it may be outflanked and lose the control of the government if it were to launch into an over-explicit coalition with parties to its left.

Furthermore, Modi is funded by Indian big business, in a country which is well-known for its total absence of regulation in this respect. In addition, he has skilfully exploited the attack in Pulwama in Jammu and Kashmir and the air-raids which followed to activate the anti-Pakistan feelings and accuse the Congress and the left-wing parties of collusion with fundamentalist Islam (this does not only happen in France), in what may well remain the turning point in the campaign. Whatever the case may be, the seeds sown will grow along with the politico-ideological changes ongoing all over the world. The decisions debated in India will increasingly affect us all. In this respect, this Indian election is indeed an election of global importance.

PS: the graph on BJP vote by caste is extracted from this research by Banerjee-Gethin-Piketty on changing political cleavages in India.

 -- via my feedly newsfeed

DeLong: As I have said, until there is a center-right that seriously intends to work to make people's lives better, there is no... [feedly]

As I have said, until there is a center-right that seriously intends to work to make people's lives better, there is no...
https://www.bradford-delong.com/2019/04/eg-mainly-macro-triangulation-or-bipartisanship-does-not-work-when-one-side-goes-off-the-scale.html

Amen, Brad DeLong!!   However note, for the sake of Lefties, the "centrist" coalition he speaks of is one that can include Ds and Rs. He is not referring to the Left as Just Sanders and AOC, or one that would exclude Nancy Pelosi.

As I have said, until there is a center-right that seriously intends to work to make people's lives better, there is no point to trying to construct a centrist coalition. Until, say, we have Republican policy economists who will not endorse a tax cut unless it will actually boost investment and economic growth, the baton is passed to the left:

Simon Wren Lewis: Triangulation or Bipartisanship Does Not Work When One Side Goes Off the Scale: "The lesson of Brexit and Trump is if you fight a culture war and lies with just well researched and targeted policy proposals, you lose. It is better to fight a culture war with an alternative vision and popular policy proposals, and a bit of class war too...

...I am not suggesting that you don't have well researched and targeted policy proposals behind that: as DeLong says 'we are still here'. But this is the time for radicals on both sides.... I have said very little about policy divisions between the left and centre-left, and that is because in practice I don't think they are very important. In both countries the left cannot implement much that the centre-left disagrees with, and much of what the left want to do the centre-left are prepared to accept.... The key question is whether the centre-left allows the left to lead when it needs to lead, or instead fights against the left and keeps the right in power...

 -- via my feedly newsfeed

Working-class Studies: Class(room) Warfare [feedly]

Class(room) Warfare
https://workingclassstudies.wordpress.com/2019/04/15/classroom-warfare/

Kathy M. Newman  

Students protesting outside the courtroom, photo by Joseph Prezioso

The actress Felicity Huffman—along with 13 other parents charged in the college admissions scandal—entered plea deals last week, putting pressure on actress Lori Laughlin and her husband, designer Mossimo Giannulli, to do the same. Prosecutors are hinting that if Laughlin doesn't accept a deal she could face 20 years in prison, 3 years of probation, and a $250,000 fine.

I have enjoyed EVERY SINGLE SECOND of this scandal and its coverage. It has exploded so many of the lies we tell ourselves about America being a fair and just society—especially when it comes to access to higher education. For those who think about class, this scandal has been like Halloween, Christmas and Easter rolled into one. Journalists and bloggers are using words like class, blue collar, elite and privilege.

Nothing of the actual details of this scandal—the bribes paid, the photos photoshopped, the tests taken by fakers—have shocked me. What has surprised me, however, is that journalists and bloggers have been using this scandal to talk about class and inequality. As sociologist Shamus Khan wrote in The Washington Post, "the true tragedy is that almost all rich families buy their kids into elite colleges by purchasing advantages they pass off as talents, whether by way of sailing lessons or elaborate vacations planned with an eye on admissions essays. We view these vastly overrepresented children of the rich as having earned their spots." This, another blogger concurred, "is the real scandal."

These comments point to the many ways that rich people get their kids into college. On the lower end of the scale is all the money many of us are able spend on music lessons, test prep, elite soccer programs, and summer-abroad service project opportunities for our kids—to name a few of the advantages families like mine can afford. At the next level are the parents who can afford to send their kids to expensive and prestigious prep and boarding schools. And, finally, at the top tier, are the parents who can donate tens of thousands or even millions of dollars to college campuses in return for a guarantee of their child's entry into said college. As many have noted in reporting on the admissions scandal, Jared Kushner's parents got him into Harvard by donating 2.5 million dollars a few years before Kushner applied.

The Associated Press turned to Richard V. Reeves, whose book Dream Hoarders showed how the upper echelon hoards all the best opportunities for itself. As Reeves commented on the scandal, "[f]or most people outside the elite, these institutions might as well be on the moon. This story just reinforces that, the way in which money buys opportunity in America."

Even Fox News declared that the "COLLEGE CHEATING SCANDAL SHOULD MAKE BLUE-COLLAR FAMILIES ABSOLUTELY FURIOUS" (all caps in the original).

Writers reveling in this scandal have even pointed out that the origin story for the very word "meritocracy" is a hoax, coined by the British writer in 1958 with his fictional, The Rise of the Meritocracy, a satirical criticism of the concept of meritocracy.

So what gives? Has the chattering class joined the revolution? Probably not.

On the other hand, something has shifted in the American political terrain, and the shift has two origins and three palpable impacts. The first origin is the global financial collapse of 2008. From the early radical critiques of the collapse and the Marx-informed analyses provided by economists like Thomas Piketty, to the new working class-centric language of Occupy Wall Street and the discovery of the 99%, to the now completely normalized presidential candidate proposals such as Medicare for All, universal basic income, and free college, we are gradually becoming a nation that sees inequality for the crisis it is.

The second shift was produced by the election of Donald Trump. On the one hand, Trump showed that a populist strain of anti-neoliberalism—nativist, protectionist, bring-industrial-jobs-back, anti-trade, pro-tariff—could be part of a winning rhetoric. At the same time, Clinton's campaign made clear that a Goldsmith's, big-Pharma, Tech-sector-backed Democratic candidate would not take radical, pro-working-class positions. Even now many Congressional leaders who are still beholden to the super-rich reject the idea that workers need a living minimum wage of $15.00 an hour (and more).

The first impact of this shift is the resurgence within the American labor movement. Massive strikes, currently of grocery store workers (on strike in the Northeast), graduate student workers at the University of Illinois, Sacramento teachers last week, and the LA Unified School District teachers earlier this year. Corey Robin has called the massive wave of teachers' strikes across the country the "real resistance" movement in the US today.

The second outcome has been the emergence of politicians who are willing to address class in a way that we have not seen since the 1930s. Alexandria Ocasio-Cortez is one, of course, but there are others, too, including Elizabeth Warren and Bernie Sanders. In Chicago, six City Council representatives were just elected with backing from the Democratic Socialists of America. Even the not-much-talked-about presidential candidate Andrew Yang is running his own universal basic income experiment (N=1) in New Hampshire.

The third sign of this shift revealed itself in this admissions scandal coverage: the willingness of ordinary journalists and bloggers to write explicitly about class. While many of us in Working-Class Studies have been doggedly pointing out the presence and importance of class in our academic and public facing work, for many years, it seems, that the rest of the world is finally catching up.

Now, to the barricades!

Kathy M. Newman, Carnegie Mellon University

 -- via my feedly newsfeed

Dani Rodrik: Peaceful Coexistence 2.0 [feedly]

Peaceful Coexistence 2.0
https://www.project-syndicate.org/commentary/sino-american-peaceful-economic-coexistence-by-dani-rodrik-2019-04

Today's Sino-American impasse is rooted in "hyper-globalism," under which countries must open their economies to foreign companies, regardless of the consequences for their growth strategies or social models. But a global trade regime that cannot accommodate the world's largest trading economy is a regime in urgent need of repair.

CAMBRIDGE – The world economy desperately needs a plan for "peaceful coexistence" between the United States and China. Both sides need to accept the other's right to develop under its own terms. The US must not try to reshape the Chinese economy in its image of a capitalist market economy, and China must recognize America's concerns regarding employment and technology leakages, and accept the occasional limits on access to US markets implied by these concerns.

The term "peaceful coexistence" evokes the Cold War between the US and the Soviet Union. Soviet leader Nikita Khrushchev understood that the communist doctrine of eternal conflict between socialist and capitalist systems had outlived its usefulness. The US and other Western countries would not be ripe for communist revolutions anytime soon, and they were unlikely to dislodge the Communist regimes in the Soviet bloc. Communist and capitalist regimes had to live side by side.

Peaceful coexistence during the Cold War may not have looked pretty; there was plenty of friction, with each side sponsoring its own set of proxies in a battle for global influence. But it was successful in preventing direct military conflict between two superpowers armed to the hilt with nuclear weapons. Similarly, peaceful economic coexistence between the US and China is the only way to prevent costly trade wars between the world's two economic giants.

Today's impasse between the US and China is rooted in the faulty economic paradigm I have called "hyper-globalism," under which countries must open their economies to foreign companies maximally, regardless of the consequences for their growth strategies or social models. This requires that national economic models – the domestic rules governing markets –converge considerably. Without such convergence, national regulations and standards will appear to impede market access. They are treated as "non-tariff trade barriers" in the language of trade economists and lawyers.

Thus, the main US complaint against China is that Chinese industrial policies make it difficult for US companies to do business there. Credit subsidies keep state companies afloat and allow them to overproduce. Intellectual property rules make it easier for copyrights and patents to be overridden and new technologies to be copied by competitors. Technology-transfer requirements force foreign investors into joint ventures with domestic firms. Restrictive regulations prevent US financial firms from serving Chinese customers. President Donald Trump is apparently ready to carry out his threat of slapping additional punitive tariffs on $200 billion of Chinese exports if China does not yield to US demands in these areas.

For its part, China has little patience for arguments that its exports have been responsible for significant whiplash in US labor markets or that some of its firms are stealing technological secrets. It would like the US to remain open to Chinese exports and investment. Yet China's own opening to world trade was carefully managed and sequenced, to avoid adverse impacts on employment and technological progress.


Peaceful coexistence would require that US and China allow each other greater policy space, with international economic integration yielding priority to domestic economic and social objectives in both countries (as well as in others). China would have a free hand to conduct its industrial policies and financial regulations, in order to build a market economy with distinctive Chinese characteristics. The US would be free to protect its labor markets from social dumping and to exercise greater oversight over Chinese investments that threaten technological or national security objectives.

The objection that such an approach would open the floodgates of protectionism, bringing world trade to a halt, is based on a misunderstanding of what drives open trade policies. As the principle of comparative advantage indicates, countries trade because it is in their own interest. When they undertake policies that restrict trade, it is either because they reap compensating benefits elsewhere or because of domestic political failures (for example, an inability to compensate the losers).

In the first instance, freer trade is not warranted because it would leave society worse off. In the second case, freer trade may be warranted, but only to the extent that the political failure is addressed (and compensation is provided). International agreements and trade partners cannot reliably discriminate between these two cases. And even if they could, it is not clear they can provide the adequate remedy (enable compensation, to continue the example) or avoid additional political problems (capture by other special interests such as big banks or multinational firms).

Consider China in this light. Many analysts believe that China's industrial policies have played a key role in its transformation into an economic powerhouse. If so, it would be neither in China's interests, nor in the interest of the world economy, to curb such practices. Alternatively, it could be that these policies are economically harmful on balance, as others have argued. Even in that case, however, the bulk of the costs are borne by the Chinese themselves. Either way, it makes little sense to empower trade negotiators – and the special interests lurking behind them – to resolve fundamental questions of economic policy on which there is little agreement even among economists.

Those who worry about the slippery slope of protectionism should take heart from the experience under the General Agreement on Tariffs and Trade prior to the establishment of the World Trade Organization. Under the GATT regime, countries had much greater freedom to pursue their own economic strategies. Trade rules were both weaker and less encompassing. Yet world trade expanded (relative to global output) at a more rapid clip in the three and a half decades after World War II than it has under the post-1990 hyper-globalist regime. Similarly, one can make a convincing case that, thanks to its unorthodox growth policies, China today is a larger market for foreign exporters and investors than if it had stuck to WTO-compliant policies.

Finally, some may say that these considerations are irrelevant, because China has acceded to the WTO and must play by its rules. But China's entry into the WTO was predicated on the idea that it had become a Western-style market economy, or would become one soon. This has not happened, and there is no good reason to expect that it will (or should). A mistake cannot be fixed by compounding it. A global trade regime that cannot accommodate the world's largest trading economy – China – is a regime in urgent need of repair.

DANI RODRIK

Writing for PS since 1998 
156 Commentaries

Dani Rodrik is Professor of International Political Economy at Harvard University's John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

 -- via my feedly newsfeed