Shaking Up Trade Theory

Free Trade & Globalism are Good, Right?

That's what the economists always told us. Now that white-collar jobs are going off shore, the economists aren't so sure. [Could it be that Chinese economists are starting to make headway in the market place? How about Indian Economists?]


Leamer and other trade experts say the resulting price competition from rising stars such as China and India could overpower any economywide gains companies get from global sourcing. They point to a famous 1968 paper by, of all people, Bhagwati, who argued that a country can be made worse off if trade lowers the price of products in which it has a comparative advantage. Bhagwati called it the "immiserating" effects of trade. In discussing the idea with BusinessWeek, Leamer wrote a short proof showing how a downward spiral of lower labor costs leads to lower export prices, causing immiseration. Even Bhagwati concedes that his insight could apply to the U.S. today, though he thinks the chances are slim that it will. "Bhagwati showed back then that a country can grow and get poorer, which might be this story, though I doubt it," says Hufbauer.







Shaking Up Trade Theory