Page 215 - Global Political Economy_Understanding The International Economic Order

CHA PTER E IGHT
As David Hume (1711–1776) demonstrated, protectionism decreases
exports over the long term. Although erecting trade barriers can im-
prove exports temporarily, this improvement causes the value ofthe
currency to rise, thus undercutting competitiveness; protectionism can
also increase the cost ofinputs, and that decreases competitiveness
over the long term. The protectionist argument that competition from
low-wage economies lowers wages and causes unemployment in in-
dustrialized economies is rejected by most economists; they point out
that the principal cause ofthe economic plight of unskilled workers
in the developed economies is the rapid technological change caused
by the computer and the information economy, both of which favor
highly skilled workers. The major consequence ofprotectionism,
economists argue, is redistribution ofnational income from consum-
ers to protected producer interests. Finally, trade protection invites
retaliation from other countries, and this means that everyone will
lose.
Despite economists’ arguments supporting trade liberalization,
trade protectionism persists, and its advocates too frequently succeed.
Endogenous trade theory explains the success ofprotectionism by
calling attention to the fact that the political process generally favors
special interests desiring protection rather than general consumer in-
terests. Whereas the benefits of free trade diffuse across a society, the
benefits ofprotection are concentrated in a few groups ofproducers.
This situation provides motivation for producers to organize in order
to influence public policy and thus gain protection. 12 As the Wall
Street Journal has quipped, “The first rule oftrade agreements is that
the benefits are widely dispersed, the costs are very concentrated, and
the losers are very vocal.” 13

Trade and the Economy
Not only is the debate over free trade inconclusive, but also there are
several misunderstandings regarding what trade does and does not
do, and these misunderstandings have fueled protectionist rhetoric.
They have also contributed to negative attitudes in the United States
and elsewhere about economic globalization and its alleged conse-
quences for the economy.

12
On the political economy oftrade, consult John S. Odell and Thomas D. Willett,
eds., International Trade Policy: Gains from Exchange between Economics and Politi-
cal Science (Ann Arbor: University ofMichigan Press, 1990).
13
Wall Street Journal, 6 December 1999, A1.
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