My tolerance level for bad policy ideas has reached its limit, with the passage of health care “reform,” so I am really not in the mood for a silly–is there any other kind?–trade war. And yet, that’s precisely what Paul Krugman wants us to have. Jeremy Warner takes the professor to school:
Paul Krugman, a Nobel Prize-winning economist, has taken to advocating a 25 per cent “surcharge” – he refuses to use the more descriptive term of “import tariff” – on goods from China as a way of bringing the Chinese leadership to heel over currency reform. So potentially dangerous and out of character is this idea that when I first read it, I assumed he was being ironic. But sometimes the cleverest of people can also be the most stupid, and he’s now said it so often that you have to believe he’s serious.
What he’s advocating is trade retaliation so extreme that it would make the 1930s look like a stroll in the park. Contrary to Professor Krugman’s naïve assumption that the Chinese would soon cave in and allow their currency to float if confronted by such hard-ball tactics, I am certain that nothing is more guaranteed to produce the opposite response.
Professor Krugman’s suggestion mines a rich seam of populist US thinking and rhetoric which grows ever more vocal and worrying as the recession persists. What makes Krugman and other highly regarded economists who toe the same line so dangerous is that they give intellectual respectability to a fundamentally disreputable idea.
Unlike Britain, America doesn’t really do free-traders. Even progressives, though they may pretend otherwise, are protectionists at heart. And there is a good reason for it. The US is still a largely internalised, self-reliant economy for which trade with the outside world is relatively unimportant. Many Americans have long thought they don’t much benefit from globalisation and that they would be better off behind high, protectionist walls. When times are tough, these arguments find ever more traction.
Warren goes on to tell us that he doesn’t “want to be unfair on Professor Krugman, for he proposes tariffs only as retaliation against China for supposedly manipulating currency markets to gain unfair competitive advantage.” Actually, there is no reason to worry about being unfair; irrespective of Krugman’s reasons, it is utterly silly for any country to engage in a trade war–the only kind where the government turns against its own citizens by denying them the power to expand consumer choice by purchasing goods from another country. Most protectionists put forth reasons for their advocacy of protectionist policies. That doesn’t make those policies any more respectable.