Leave Zombies Be

• Author: Paul Krugman

Leave Zombies Be Finance & Development, December 2016, Vol. 53, No. 4

Paul Krugman

The stalled march toward trade liberalization is just as well

Globalization is currently under political siege, with populists from both the left and the right denouncing proposed new agreements like the Transpacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership. Much of what these politicians say is nonsense. But there are some deep reasons why the march of globalization seems to be faltering, and denouncing bad economics won’t be enough to restore business as usual.

The crucial point, I’d argue, is that there has always been significant dissonance between the rhetorical commitment of economists and elites to free trade and the message that actually emerges from economic models. Yes, textbook trade theory says that international trade makes countries richer, while restricting it makes them poorer. But it also suggests both that there are relatively limited costs from anything short of extreme protectionism and that trade can have strong effects on income distribution within nations, creating losers as well as winners.

Why, then, has trade liberalization drawn so much approbation from economists and policy elites alike? For economists the answer, I suspect, is that comparative advantage is such a nifty concept—an insight Paul Samuelson famously held up as a prime example of economics reaching a conclusion that is both true and nonobvious, and which therefore holds a special place in the profession’s heart (see “Get on Track with Trade,” in this issue of F&D). For elites, I suspect that it matters a lot that the post–World War II trade system has been a uniquely successful example of international cooperation. This makes trade liberalization very attractive to the kinds of people who go to Davos and talk knowingly about global affairs.

And for a long time—from the 1940s into the 1980s—trade liberalization proceeded remarkably smoothly. The losers from growing trade didn’t seem that obvious or numerous, largely because much of that growth took the form of intra-industry flows between similar countries, which had minimal effects on distribution.

Since around 1990, however, the story has been very different. For a couple of reasons—lower transportation and communication costs (exemplified by the container ship revolution), a wholesale shift of developing economies away from import-substituting policies—we’ve seen a huge surge in...