When economists are polled on whether free trade creates net benefits for an economy, the vast majority, sometimes over 90 percent, answer that it does. Politicians, though, are another story. In 2018, President Trump proudly called himself “tariff man” and was true to the label: he imposed many tariffs on imports, even though one of the usual, if mistaken, rationales used to justify restrictions on imports, high unemployment, did not apply. Many economists hoped that whatever other harms President Biden might impose, he would reverse all or most of Trump’s tariffs. Although Biden has had over three years to reverse those measures, he hasn’t done much.
It was only natural, then, to wonder how Biden’s economists at the Council of Economic Advisers (CEA) would discuss trade. They could ignore trade, always an option for economists who want to maintain their professional integrity but not dump on the boss. They could call for reducing tariffs: although that would be nice, it might cause some of them to lose their jobs or, at least, be ignored. Or they could talk about the benefits of trade without addressing whether it should be restricted or liberated by tariff reductions. The last, discussing the benefits, is probably the least bad choice. Fortunately, that’s the choice they made in the 2024 Economic Report of the President.
These are the opening two paragraphs of my latest Hoover article: David R. Henderson, “Biden’s Economists Are Mostly Open to Free Trade,” Defining Ideas, April 4, 2024.
In this paragraph, I bring in my own back-of-the-envelope calculation to make the point they make:
In 2016, I computed the gains from freer trade in clothing. The downside is that the US economy lost 650,000 apparel jobs between 1997 and 2007, which is when Chinese imports increased so rapidly. Not all those people found jobs at a pay as much as they earned before. The good news is that, with the increase in international trade, clothing became much cheaper. In his book The Rise and Fall of American Growth, Northwestern University economist Robert J. Gordon reported that between 1980 and 2013, clothing prices fell by an average of 2.6 percent per year. Compounded over that whole period, that’s a 58 percent drop. At the time, households in the bottom two income quintiles had an average after-tax income of $19,266. I computed their gain from lower prices for clothing, both on clothing they would have bought and on the extra clothing they bought because of the lower price. The gain averaged $935 per household. At the time, there were about fifty million households in the lowest two quintiles, so the overall gain was about $46.8 billion annually. Assuming that the 650,000 people who lost their jobs lost as much as $10,000 each per year, which is probably an overestimate, their loss was $6.5 billion, which is less than 15 percent of the gain.
There is more than one but:
The other disappointment is its celebration of the US government’s interference in Mexico’s labor market.
Read the whole thing.
