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Contrasting Joan Robinson And Paul Krugman’s Views On The Global Rules Of Trade

Summary:
Paul Krugman has a new article, Why A Trade War With China Isn’t ‘Easy To Win’ (Slightly Wonkish), in The New York Times, in which he rightly points out Donald Trump’s switching positions on trade with China. Krugman however has a generic point about international trade as some kind of mercantilism:Admittedly, the political economy of trade is kind of mercantilist, because it’s driven largely by producer interests. Long ago I wrote about “GATT-think”, the view of trade, enshrined in international negotiations, that sees exports as good, imports as bad, so that letting someone sell us stuff, even if it’s better and cheaper than we could make ourselves, is a “concession.” The genius of the postwar international trading system was that it harnessed this special-interest reality, using the

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Paul Krugman has a new articleWhy A Trade War With China Isn’t ‘Easy To Win’ (Slightly Wonkish), in The New York Times, in which he rightly points out Donald Trump’s switching positions on trade with China. Krugman however has a generic point about international trade as some kind of mercantilism:

Admittedly, the political economy of trade is kind of mercantilist, because it’s driven largely by producer interests. Long ago I wrote about “GATT-think”, the view of trade, enshrined in international negotiations, that sees exports as good, imports as bad, so that letting someone sell us stuff, even if it’s better and cheaper than we could make ourselves, is a “concession.” The genius of the postwar international trading system was that it harnessed this special-interest reality, using the ambitions of exporters to offset the protectionism of those competing with imports, to engineer a kind of enlightened mercantilism that vastly expanded world trade.

[italics: mine]

So Krugman is admitting that it is in the interest of big producers, but claiming that his interests aren’t aligned with them and that the rules of trading were made such that it somehow offset them.

The reality is of course different. More successful countries do not need protection at home. At least we can say that they’re are willing to forgo protectionism as the advantage from selling more easily in markets abroad is immense. As Joan Robinson pointed out in a 1977 article (and even before), What Are The Questions?

From a long-run point of view, export-led growth is the basis of success. A country that has a competitive advantage in industrial production can maintain a high level of home investment, without fear of being checked by a balance-of-payments crisis. Capital accumulation and technical improvements then progressively enhance its competitive advantage. Employment is high and real-wage rates rising so that “labour trouble” is kept at bay. Its financial position is strong. If it prefers an extra rise of home consumption to acquiring foreign assets, it can allow its exchange rate to appreciate and turn the terms of trade in its own favor. In all these respects, a country in a weak competitive position suffers the corresponding disadvantages.

When Ricardo set out the case against protection, he was supporting British economic interests. Free trade ruined Portuguese industry. Free trade for others is in the interests of the strongest competitor in world markets, and a sufficiently strong competitor has no need for protection at home. Free trade doctrine, in practice, is a more subtle form of Mercantilism. When Britain was the workshop of the world, universal free trade suited her interests. When (with the aid of protection) rival industries developed in Germany and the United States, she was still able to preserve free trade for her own exports in the Empire. The historical tradition of attachment to free trade doctrine is so strong in England that even now, in her weakness, the idea of protectionism is considered shocking.

[italics: mine]

The last sentence is also important when discussing Krugman. The United States’ balance of payments has deteriorated and needs some protectionism. But economists are attached to the idea of free trade like it’s some dogma.

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