Trade policy

Dani Rodrik and Tyler Cowen debate about trade policy desirability…
Should economists be debating politics?
Question for Dani Rodrik

The devil is in the details.  Here is Rodrik again:

“is there any chance that we could actually move in the direction that I would like to see (which is not necessarily and always the unconditional free trade direction) without doing more damage than good?

The fact that we do not live in autarky is prima facie evidence that we are not at a corner solution where the political-economy equilibrium is concerned. That means that even relatively small changes in institutional design—with corresponding changes in incentives for political agents—can have important implications for the outputs of the political game. We actually have some control over how the political game is to be played, and therefore over the amount of rent-seeking that will be generated in equilibrium.

Here is one example where this generally works to our advantage. To prevent congressional log-rolling in tariff setting, we allow Congress to delegate the details of trade policy negotiations to the President (in the form of trade negotiating authority), with Congress limited to an up-or-down vote on the entire package. It is generally agreed that this delivers better trade policy than in the absence of delegation.

And here is another example where it works to our disadvantage (and does so again by design). Anti-dumping proceedings are explicitly designed to favor import-competing firms and to provide protection where none is really needed on sound economic grounds. That is because the government is instructed to determine whether firms are “injured,” but not whether the imposition of duties would engender greater hurt elsewhere. Their outcomes would be significantly different if we allowed beneficiaries of trade (consumers and downstream firms) to have standing in these proceedings.”

Finally, Rodrik gives me a nice quote of the day:

“Scratch any strongly-held view about free trade, and you will find (typically) unexamined political assumptions underneath.”