Biden’s economists are pretty decent on free trade

When economists are polled about whether free trade brings net benefits to an economy, the vast majority will sometimes more than 90 percent, answer that this is the case. Politicians, however, are a different story. In 2018, President Trump called himself proud ‘rate man‘ and was true to the label: he imposed many import duties, even though one of the usual, if incorrect, reasons to justify import restrictions, namely high unemployment, did not apply. Many economists hoped that whatever other damage President Biden might inflict, he would roll back all or most of Trump’s tariffs. Although Biden has had more than three years to reverse these measures, he didn’t do much.

It was only natural, then, that we wondered how Biden’s economists at the Council of Economic Advisers (CEA) would discuss trade. They could ignore trade, which is always an option for economists who want to maintain their professional integrity but don’t want to dump the boss. They could call for a reduction in rates: while that would be nice, it could lead to some of them losing their jobs or at least being ignored. Or they could talk about the benefits of trade without asking whether it should be restricted or freed by tariff cuts. The last one, discussing the benefits, is probably the least bad choice. Fortunately, that’s the choice they made in the President’s 2024 Economic Report.

Here are the first two paragraphs of my latest Hoover article: David R. Henderson, “Biden’s economists are largely open to free trade,” Defining ideasApril 4, 2024.

In this paragraph I put forward my own back-of-the-envelope calculation to illustrate the point they make:

In 2016 I calculated the benefits of freer trade in clothing. The downside is that the US economy lost 650,000 apparel jobs between 1997 and 2007, even as Chinese imports grew so rapidly. Not all of those people found a job at the same wage as they previously earned. The good news is that clothing has become much cheaper due to the increase in international trade. In his book The rise and fall of American growthAccording to Northwestern University economist Robert J. Gordon, clothing prices fell an average of 2.6 percent per year between 1980 and 2013. Over that entire period, this is a decrease of 58 percent. At the time, households in the bottom two income quintiles had an average after-tax income of $19,266. I calculated their profit from lower clothing prices, both on clothing they would have purchased themselves and on the additional clothing they bought because of the lower price. Profits averaged $935 per household. At the time, there were about fifty million households in the lowest two quintiles, so total profits were about $46.8 billion annually. Assuming that the 650,000 people who lost their jobs lost as much as $10,000 each year, which is likely an overestimate, their losses were $6.5 billion, which is less than 15 percent of profits.

There is more than one, but:

The other disappointment is the celebration of the US government’s interference in the Mexican labor market.

Read the whole thing.