Free Trade in the Real World
LEKACHMAN, ROBERT
Free Trade in the Real World Protectionism By Jagdish Bhagwati MIT. 147pp. $16.95. Reviewed by Robert Lekachman An economist who writes a short book in graceful English merits...
...It is difficult to believe that such focused endeavor does not put at a disadvantage countries like the United States, which do not emulate the Japanese combination of intense domestic competition and cooperative export behavior...
...I have a single reservation of consequence about this admirable volume...
...American exporters fear retaliation if Washington indulges itself in harassment of Japan and Western Europe...
...During this period, the United States sponsored new international institutions aimed at dismantling trade barriers...
...If dominance has really passed from America to Japan, it is safe to predict that soon Japan Ine...
...Indeed, the intellectually impeccable case in favor of free trade might delude a naive soul into the belief that it is bound to triumph in the real world...
...Until 1973, world trade in the War's aftermath expanded more rapidly than economic growth in Japan and Germany to the universal benefit of all parties, just as David Ricardo had predicted...
...Quite naturally, we clamored for markets open to our industrial and agricultural abundance...
...I suppose I repeat myself in conclusion by recommending this model piece of exposition to anyone trying to make sense of the endless arguments over free trade, "fair" trade, "managed" trade, and outright protectionism...
...Japanese investors are constructing factories around the country and demonstrating their ability to enlarge productivity in old installations, most spectacularly in their joint venture with General Motors in Fremont, California...
...Perhaps to compete more effectively in international markets we require Japanese instruction...
...True, imports displace domestic workers...
...Bhagwati does not meet head on the highly successful Japanese policy of creating what might be termed an artificial comparative advantage...
...This pursuit of individual advantage is admirably connected with the universal good of the whole...
...In the present session, Congress enacted a complex trade bill that is unmistakably protectionist in its thrust...
...Almost, but not quite...
...The multinational corporations, citizens of the world, naturally prefer open to closed markets...
...We dominated the world economy much as our British cousins once did...
...Yet not all is lost...
...The 20th century American experience repeats history...
...By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labor most effectively and most economically...
...During its free trade period, England was the world's dominant industrial power...
...When the Americans and Germans began to invade British markets in the 1880s, protectionist sentiment revived...
...Bhagwati has converted me to free trade...
...The general disruption of the 1970s, triggered by the 1973 and 1979 oil price explosions, slowed economic growth and increased unemployment in advanced countries, while saddling the developing countries with a debt burden that severely limits their ability to buy First World products and services...
...Exporters especially resent higher prices on the new materials and the parts that they import and incorporate in finished products...
...The great man merits quotation: "Under a system of perfectly free commerce, each country naturally devotes its capital and labor to such employments as are most beneficial to each...
...He has adroitly expounded the arguments for free trade and protection in a form readily comprehensible to noneconomists, and at the same time referred fellow practitioners to the latest research findings on the process and effects of international trade...
...while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world...
...The process, in fact, has already begun...
...But exports create new jobs...
...will wave the banner of free trade...
...American policymakers recall the role of the infamous 1930 Smoot-Hawley Tariff, widely believed to have intensified and prolonged the Great Depression...
...The record clearly demonstrates that free trade is politically and publicly perceived as benign only within the borders of economically dominant nations...
...The classic argument for free trade was made in 1817 by David Ricardo...
...Our major competitors—England, Germany and Japan—were devastated and struggling to return to pre-World War II levels of output...
...An easy inference from these inspirational words is the advantage of free trade to a single nation even if its trading partners erect tariff barriers and other obstacles to imports...
...For the more protectionist states subsidize their exports, the cheaper is their merchandise for the citizens of the free trading nation...
...Bhagwati identifies powerful free trade interests...
...Jagdish Bhagwati has actually done considerably more...
...Bhagwati sensibly advocates more effective adjustment assistance to afflicted enterprises and their employees...
...Bhagwati examines two parallel examples of free trade— England during most of the second half of the 19th century after the 1846 repeal of the Corn Laws, and the United States in the generation after World War II...
...I refer to the partnership between business and government to target specific sectors of American and other economies for export promotion—automobiles, consumer electronics, and semi-conductors...
...When he addsasenseofhistory and touches of humor, applause can only grow louder...
...Reviewed by Robert Lekachman An economist who writes a short book in graceful English merits acclaim for that achievement alone...
...Growth in some developing nations was even more rapid than in the First World...
...But once Germany and Japan recovered and the Japanese in particular began to invade our markets, protectionism revived...
...We know better...
...Like all but a tiny minority of mainstream economists in the English-speaking world, Bhagwati is a free-trader...
...The General Agreement on Trade and Tariffs embodied a set of fair trade rules which led to successive rounds of tariff reduction...
...The World Bank and the International Monetary Fund undertook the twin tasks of capital infusions into developing countries and currency stabilization...
...American industry had little to fear from import competition...
...England's spell of free trade sparked rapid growth in the world economy despite rampant protectionism among Britain's trading partners...
...It's all rather sad...
Vol. 71 • September 1988 • No. 16
