Win-win from trade liberalisation

Very interesting paper by James Harrigan and Geoffrey Barrows at NBER which quantifies the benefit to the United States of ending the Multi Fiber Agreement (which had regulated the global textile trade), and which was ended as part of the Uruguay Round.

The paper finds that this change in trade policy was worth approximately $12 billion a year to American consumers.

That is in addition to the benefits to many people in China, India, Pakistan and Bangladesh, who are now better able to earn a living producing and exporting goods to to the United States. (The paper does not seek to quantify these benefits).

Via Trade Diversion 

2 comments on “Win-win from trade liberalisation”

  1. Economists Are Destroying America

    November 7th, 2006 by JohnKonop

    Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:

    • Increase wages
    • Create trade surpluses (for the US)
    • Reduce illegal immigration

    Well, their trade policies have been in effect for about 15 years. Let’s review the results:

    • Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
    • A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
    • Illegal immigration out of control
    • Soaring trade deficits, much with countries that use slave and child labor
    • Personal and national debt both out-of-control
    • Global environments threatened by lax trade deal enforcement

    Economists Keep Advocating Policies That Aren’t Working

    Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.”

    Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

    Why Aren’t American Economists Shouting From Street Corners?

    America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:

    • Economists are too beholden to corporations and special interests that provide them with research grants.
    • Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
    • Economists refuse to admit they make mistakes.

    Economic Ambulance Chasers

    Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.

  2. "Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies."

    That is true! I mean I don’t know whether economists believe in it or not but in fact in order to make gains in developing countries fast we need to make some sacrifices in industrialized countries. There is a win-win situation from trade liberalisation but it’s not taking us far enough. We need to go further beyond the point where industrialized countries make gains to a situation where further trade liberalisation does result in gains in developing countries and in sacrifices in developed countries.

    It is ironic that trade liberalisation was justified to help the poor countries but started helping only the rich. Now it works as advertised and rich countries are questioning the whole approach.

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Owen Barder

Owen is Senior Fellow and Director for Europe at the Center for Global Development and a Visiting Professor in Practice at the London School of Economics. Owen was a civil servant for a quarter of a century, working in Number 10, the Treasury and the Department for International Development. Owen hosts the Development Drums podcast, and is the author Running for Fitness, the book and website. Owen is on Twitter and