Trade in the real world — Jared Bernstein and Simon Johnson

MIT Sloan Prof. Simon Johnson

MIT Sloan Prof. Simon Johnson

From The Washington Post

Supporters of the Trans-Pacific Partnership (TPP), a trade agreement under negotiation between the United States and 11 other countries, make this case: Trade between countries is always good, and more trade with more countries is even better. Harvard economist Greg Mankiw goes further in a recent New York Times piece, arguing that anyone opposed to trade deals does not understand elementary economics.

The arguments made by these advocates do not match the reality of the modern world and are not helpful for thinking about what is at stake in the TPP. It’s not a question of understanding economics. It’s a question of knowing precisely what we’re agreeing to when we sign the TPP.

In the simple models of introductory textbooks, countries improve their respective economic outcomes by specializing in their “comparative advantage” — the goods they produce more efficiently than their trade partners — thereby increasing the supply of goods and lowering prices. No government subsidy is involved, nobody cheats, everyone is well-informed about the nature of the deal, and pretty much all parties come out ahead. If anyone loses their job, in those models either they get another good job or they can be fairly compensated by the people who gain extra income.

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Putting the TPP on the right track — Simon Johnson and Rep. Sander Levin

MIT Sloan Prof. Simon Johnson

From Politico Magazine

The Trans-Pacific Partnership is a major potential trade agreement between the United States and 11 countries at very different levels of economic development, including Japan, Mexico and Vietnam. Will the agreement boost U.S. growth, address wage stagnation, help our strategic partners and create legitimate rules for international trade in the 21st century? The answer hangs in the balance.

With negotiations reported to be entering the final stages, it is critical that Congress focus at this point not on how to “fast track” approval of an agreement — through passing Trade Promotion Authority — but on making sure the TPP itself is on the right track.

There is a real choice to be made between two different approaches to international trade.

The first approach is based on the unbridled free-market view that more trade is necessarily better. The focus here is on eliminating regulatory barriers to exports and foreign investment. It is claimed that market forces will not just increase economic efficiency, but also improve governance in developing countries. Similarly, trade imbalances between nations will work themselves out.