Global Finance and Comparative Advantage in Trade

I've blogged repeatedly* that if we are to understand recent developments in the US and global economies pertaining to inequality, stagnation, regulatory capture, and electoral influence we need to do two things at least:

1. Embed the financial system within the broader US economy.

2. Embed the US economy within the broader global economy.

If we do these two things we will likely conclude, as I did in one recent post, that:

The cumulative effect of [opening of capital accounts and trade developments via GATT/WTO] both forced encouraged the US to pursue its comparative advantage in high-skilled service labor (e.g. finance) and increased the market into which the US could sell its comparative advantage. The result is thus entirely predictable: finance becomes a bigger size of the US's economy, while comparatively disadvantaged sectors shrank.

Some people, e.g. a commenter on that post, seem to have difficulty grasping this point. But Emmanuel recently noted something interesting:

the WTO has for the most part ruled in favour of the United States in its case against China over discrimination against international payment card transaction firms in the RMB-denominated arena

I.e., US financial firms -- in this case credit card companies -- want access to the Chinese market. The Chinese blocked them. The US government took China to the WTO and won. This is precisely the behavior we would expect if the US was trying to open up a market for its comparatively-advantaged sector, while China was trying to close off that market to protect its comparatively-disadvantaged sector.

I'm not genius for making this case... it's the simplest materialist explanation of trade politics that we know. But sometimes the simple theories work quite well.

*I am sure there are dozens more posts in a similar vein to the one linked above. Searching the blog for relevant terms should turn them up.

Poetry, Prose, Propaganda, Policy, & Paradigms: Drezner vs. Drezner (And Me)

A few weeks ago Dan Drezner called me "curiously lazy" for writing that we shouldn't pay much attention to what presidential candidates say about foreign policy during campaigns, especially when they say things like this:

At some point Romney will be asked direct questions about foreign policy. When he [is] asked those questions he will say things like "I will get tough with China to make sure they play by the rules and stop stealing American jobs" and "I will not let terrorists kill American citizens, and I will do whatever is necessary to keep Americans safe" and "I will keep America strong by not cutting our military budget" and "Screw Russia".

While Drezner acknowledged in that post that campaign rhetoric is just campaign rhetoric, he suggested that Romney still needed to talk more about foreign policy in order to "demonstrat[e] leadership" over his campaign, whatever that means. Now Drezner says:

So, does it matter for policy? Well.... no. 

Mario Cuomo once said "You campaign in poetry. You govern in prose." Now, Mario Cuomo was clearly the world's worst poetry connoisseur. Still, to update his observation for our current needs, we can say, "You campaign as a mercantilist; you govern as a free-trader." The reason that Romney has seemed so discombobulated by the Bain attacks is that he's been China-bashing since Day One ofhis campaign, so it's tough to then flip-flop pivot to a free trade stance. ... 

As stomach-churning as I find this kind of ad, I must reluctantly agree with Yglesias and Brooks that it doesn't matter all that much for governing. ... 

I don't think the mercantilist campaign rhetoric will amount to much.

Right. So: Romney's gonna say nationalist stuff, he's gonna say mercantilist stuff, and you shouldn't pay attention to any of it because it won't have an effect on policy or the election. Same for Obama. This is pretty much exactly what I said in my "lazy" post, which concluded thusly:

This is not meant to say that Romney's foreign policy decisions will not be important. They will be. It's just that we won't learn much about what they will be from any campaign statements.

Drezner is so chagrined by all this foreign policy talk (which he asked for) that he anticipates the next few months of the campaign will be "nauseating". Perhaps. If so, and assuming he's not a masochist, he might be well-served to take my initial advice: just don't pay attention to it. It's not lazy; it might even be wise.

(The only other similarity between our two posts? Drezner refers to "campaign bluster" where I write "campaign blather". I also refer to "bloviating". I prefer my choice of 'b'-words, but I suppose that's a matter of preference.)

(One last little thing: Drezner argued, contra me in my "lazy" post, that Romney -- being a smart guy -- surely knows the difference between neoconservatism and realpolitik. I know of no reason to believe this is true. Certainly Romney himself has given us no reason to believe this is true. James Joyner sees Romney's foreign policy as "realist". Jacob Heilbrunn sees it as neoconservative. Romney talks about a "new American Century" -- neocon -- but thinks we'll bring that about by balancing against the rise of China and Russia (!) -- realist. Mostly he seems to think that the U.S. should be strong, which is congruent with both neoconservatism and realpolitik. So you tell me.)

Actually, Let's Not Start a Trade War With China Just Now

(click for larger image)

Brad DeLong links to Jared Bernstein, who suggests some policies that Obama could pursue (without deficit spending) to help the U.S. employment malaise. Many of them are fine, but this one isn't:

Currency Management: this would be a very bad time to let up on countries who subsidize their exports by suppressing their currency values in foreign exchange markets, most notably China. I’d push the Levin bill on this. And it’s bipartisan: the darn thing got 99 R votes in the last Congress!

The Levin bill proposes slapping tariffs on goods coming from countries that manipulate their exchange rates to boost exports. Levin has proposed a variant of it for years (here's one from 2006), but finally got traction during the recession. Krugman agrees that this is a good idea, but I think there are a number of problems with it.

1. It's most likely illegal. If China is violating trade rules with its exchange rate policies, then the USTR should take them to the WTO. The fact that that hasn't been done at any point over the past decade, despite the fact that it would have been politically popular, indicates to me that the USTR believes it would lose such a case. There's a reason why exchange rate policy has been referred to the IMF (which conducts monitoring and surveillance but has no authority) rather than the WTO. It's also not clear that China is violating any WTO rules. For one thing, the WTO doesn't have a lot to say about which exchange rate regimes are legal and which aren't. And although using the exchange rate to subsidize exports could be illegal, there's a fairly high bar to clear. This (several years old) thread on the excellent International Economic Law and Policy blog describes the three simultaneous conditions under which currency manipulation could be WTO-illegal: 1. It must entail a "financial contribution"; 2. It must be specific; 3. It must confer a benefit on exporters. The comments to that post get into specifics, but according to IELP, "If [currency policy] is contingent in law or de facto upon export performance, it is then prohibited and deemed specific automatically".

The graph above shows the nominal dollar-yuan exchange rate over the past five years. Does it look like the exchange rate is contingent upon export performance? The yuan has appreciated against the dollar by nearly 25% over the past five years, and I'm not sure the trend clearly indicates responsiveness to changes in Chinese export performance.

2. There are growing concerns about inflation in the U.S. These concerns may be misguided, but they play well in Republican circles and among certain Governors at the Federal Reserve. Slapping an import tariff on China would cause immediate price spikes across a wide range of consumer goods, which would likely lead to increased calls for the Fed to tighten monetary policy. That, of course, would not be good for economic recovery. Nor would it be good for standards of living. A Chinese undervaluation of the yuan is equivalent to the Chinese giving us free money. Let me say that again: a Chinese undervaluation of the yuan is equivalent to them giving us free money. It's not clear to me that trading lower standards of living for more jobs is a net win. Jobs are certainly important, but they're not the only important thing.

Moreover, as we've discussed on this blog repeatedly, the nominal exchange rate is less significant than the real exchange rate, and the real exchange rate is shifting faster than the nominal rate as inflation in China out-paces inflation in the U.S.

3. It's not at all clear that a tariff targeted specifically at China's exchange rates would have any effect on U.S. jobs. Not only would importers suffer, but there is no reason to believe that manufacturing jobs would come back to the U.S. en masse. Manufacturing employment was collapsing before the recession (see also here), and even if China lost some jobs via a U.S. tariff those jobs would likely go to Vietnam and Taiwan and South Korea and any number of other places before coming back here. A tariff would make U.S.-produced goods cheaper relative to Chinese goods (in U.S. markets), but would not affect the price of Vietnamese goods at all. The magnitude of this shift, and the timing of it, isn't obvious to me, and to some extent it offsets #2 above, but the world is dynamic.

4. Those dynamics are not limited to economics; they also involve politics. The Chinese would not simply accept tariffs as the new cost of doing business. They would fight back. First, they would take the U.S. to the WTO. Second, they would likely enact retaliatory tariffs. The WTO cases would take years to be resolved (i.e. hopefully after the recovery from the recession), but the tariffs would immediately damage U.S. exporters. Obama's stated policy goal is to double American exports over the next several years. It's going to be hard to do that if you can't sell into the world's fastest-growing major market, now the second-largest economy on the globe.

5. The U.S. runs the risk of pot-meets-kettle reactions from the rest of the globe. The world already believes that U.S. monetary policy, with interest rates at 0% and two rounds of quantitative easing already conducted, constitute "currency manipulation" of a different sort. Putin called it "hooliganism", Brazil imposed capital controls, S. Korea has expressed concern about exchange rates at the G20, etc. I agree with Krugman and others that this criticism is over-blown; the U.S. is in a deep recession and should be using monetary expansion to help get out of it. But a round of tariffs targeting exchange rate policy will leave the U.S. open to a dose of its own medicine. Other countries are already wary of U.S. policy, and more aggressive measures could quickly lead to a cycle of more prevalent beggar-thy-neighbor policies. Right now it is critical that international economic cooperation move forward, not back. We've seen from the Japan crisis how badly economies are damaged when global supply chains are disrupted.

6. The U.S. needs to know its role. The global economy is still terribly damaged. 1937 isn't the worst analogue. Right now the U.S. needs to do everything it can to keep markets open, maintain international cooperation, provide liquidity into the global system, and maintain a market for goods. In other words, it needs to live up to Kindleberger's charge. That involves allowing some free-riding. It involves setting policy based on global, not domestic, circumstances. Myopically trying to get back every lost job as quickly as possible runs the risk of damaging global economic relations over the medium- and long-run, which could easily have adverse effects on growth and prosperity. Letting China sell us goods at below-market prices seems like a very small price to pay for averting a seriously negative outcome.

Tragedy of the Day

From Easterly and Freschi:

Multiple critics have protested ever since the US government, hoping to force President Andry Rajoelina’s questionable government to hold elections, first threatened to remove preferential trading rights for Madagascar.

The Malagasy textile industry was a clear success story of the US African Growth and Opportunity Act (AGOA), which removed US quotas and duties from thousands of products from eligible African countries. Madagascar’s exports tripled in the first three years of the program, and the textile sector, which made up 60 percent of Malagasy exports, accounted directly for 50,000 jobs and indirectly at least 100,000 more.

The US pulled the plug on AGOA at the end of December and import duties of up to 34 percent were reintroduced. ...

Among the effects we are NOT seeing: signs of increased interest in arriving at a power-sharing agreement or instating democratic governance on the part of Rajoelina’s government.

Ineffective sanctions, effective job destruction. An unaccountable branch of the US government hurts poor people far away who have no voice in US politics. Deeply saddened…we don’t know what more to say.

Seconded.

I wonder what pro-democracy/anti-trade "public citizens" think of this? A month ago they loved it, on the grounds that it would improve the state of Madagascar's democracy. So far that doesn't seem to be happening. Maybe it's too soon to tell, but I predicted this then, and issued a challenge playing off of Aid Watch's motto... all I ask is that democracy-promotion actually promote democracy.

Let's move beyond knee-jerk "trade = good/bad" ideology and get to facts: what are the reasonable odds that this policy is successful in promoting democracy in Madascar? Economic growth? Anything good? I think those odds are very slim, and so far the evidence bears that out. And if you don't get your Platonic ideal of unencumbered democracy, these sanctions are just needlessly impoverishing some of the world's poorest people.

Pardon me, but I don't see how advocating for horrible outcomes is acting like a responsible global citizen.

China Won't Accept Carbon Tariffs

Via IELPB, the Chinese don't agree with Paul Krugman's assertion that carbon tariffs (or the threat of them) could help put teeth into a global climate change agreement:

"Up to now, whether it is the proposals in the U.S. climate bill or the comments by French President Sarkozy, the carbon tariffs are just a kind of deterrent used by developed countries to put pressure on developing countries, breaking the principle of 'common but differentiated responsibilities' and making them commit to their own emission cuts," Zhang told the conference.

He said retaliation would also be inevitable.

"The United States per capita emission rate is four times as big as China's. Does that mean we can impose 400 percent tax rates on all imported American goods? If so, the result is a global trade war that is good for no one and no use at all in the fight against climate change."

Also, "Frankly, if tariffs are being implemented unilaterally, they cannot be objective and cannot be non-discriminatory." Of course, if the U.S. goes down this road it won't only be China that places tariffs on U.S. goods. Considering that the U.S. is by far the world's largest per capita emitter, it would be really stupid for Obama to encourage a new norm of carbon tariffs.

This argument isn't entirely different from the standard response from developing countries when pressed to adopt strict carbon limits by developed countries: "You already got rich by polluting, and now it's our turn. Why should we have to pay to clean up your mess?" I've gotta say, it's a pretty strong argument, and it's not clear to me that developing countries will be willing to abandon it any time soon. And if developing countries aren't on board, it will difficult to get public support for self-immiserating policies in developed democracies.

The politics of climate change are just really, really bad.

Playing Both Sides

From the FT:

The US Senate voted on Wednesday to soften a ”Buy American” plan in its $900bn stimulus bill after President Barack Obama expressed concern the original language could trigger a trade war.

Senators, on a voice vote, approved an amendment requiring that provisions that upset Canada, the European Union and other trading partners be ”applied in a manner consistent with US obligations under international agreements.”

The underlying Senate bill had required that all public works projects funded by the stimulus package use only US-made iron, steel and manufactured goods -- potentially putting the United States in violation of its commitments under the North American Free Trade Agreement and the World Trade Organisation’s government procurement agreement.

Obama, asked about the Buy American provisions in television interviews on Tuesday, said the United States had to be careful not to include any provisions in the stimulus bill that could ”trigger a trade war.”

”I think it would be a mistake ... at a time when worldwide trade is declining, for us to start sending a message that somehow we’re just looking after ourselves and not concerned with world trade,” Obama said on the Fox network.

Okay, so, the way I read this is that the US Senate, under pressure from President Obama (who himself is under pressure from Canada and the EU), decided to so weaken the 'Buy American' provision of the stimulus bill as to make it pointless. The original point of the 'Buy American' provision was pure protectionism. The "provisions that upset Canada, the European Union and other trading partners" were the parts that were protectionist. So if we're gonna remove the teeth from the 'Buy American' section of the bill, why not just remove it entirely?

An incident from the early years of the last president may be instructive. Recall 2002, when President Bush signed steel tariffs into law in exchange for fast-track negotiating authority for the Doha round of WTO negotiations. One the one hand, this move made little sense: Bush was a convinced free-trader, and he had a Republican majority in both houses of Congress. So why do it?

Fast-track authority in the Doha round gave the US credibility in negotiations that it would lack if any agreement required Congressional approval. President Bush could have known that the Doha round was fraught with difficulties that would make reaching an agreement difficult, and any sign that Bush was negotiating without pre-approval from Congress would make negotiating even more difficult. President Bush also could have known that the steel tariffs would be immediately challenged in the WTO dispute settlement court. Indeed, this happened, as the EU, Japan, Brazil, Korea, China, Switzerland, and others challenged the US policy. The steel tariffs were an obvious violation of WTO obligations, and the dispute settlement body ruled against the US. In 2003, Bush removed the tariffs, but kept the fast-track authority. Plus, he could credibly tell the American people that his hands were tied: he had to abide by our international agreements. It was win-win-win for Bush.

Perhaps President Obama is hoping for something similar: keep the 'Buy American' language to appease domestic political factions and get the stimulus bill passed, but sufficiently neuter it to avoid a confrontation with the EU, Canada, and the rest of the world.

(ht: DeLong)

More Sweatshop Blogging

Matthew Yglesias, of the progressive Center for American Progress, responds to the Kristof op-ed that Dr. Oatley linked to the other day:

Nicholas Kristof writes a depressing column about Cambodian kids who spend their days picking through giant heaps of garbage seeking usable scraps and dreaming of the day when they might be able to work in a sweatshop. I think it’s wrong to say that all consideration of international labor standards is merely aimed at keeping people stuck on the trash heap, but it’s a valuable reminder about the generally limited ability of just saying “no” to things to accomplish what people want. Part of the reason sweatshops exist and attract laborers is that life on the garbage heap is even worse, as is the life of a third world subsistence farmer. If you want to improve things, you need to actually be expanding the set of feasible options, not just arbitrarily closing down one path. And this happens in a variety of fields. Some neighborhoods in DC seem to have the idea that if they put tight restrictions on opening new chain stores or bars and restaurants that this will magically conjure up a diverse mom-and-pop economy. In practice, you get empty storefronts; crowded, mediocre bars and restaurants; and people driving to chain stores in the suburbs.

In both cases, there’s nothing wrong with the objective. But it’s a mistake to think that purely by vetoing stuff you can force the kind of positive action you want. To raise actual labor conditions in the third world, we need to create more prosperity and more economic opportunity not just say “no” to particular forms of bad conditions.

via Will Wilkinson, who adds:

Damn straight. Matt nails it. So why is this line of thought so elusive for so many would-be decent people? I am constantly dumbstruck that so many who profess to care about “social justice” do little more than complain that desperate people have really terrible options and then work to take away the best options.That, of course, is not the intention, but that’s usually how it ends up working, whether the issue is “sweatshops” or “human trafficking.” Some day, more of us will see the devastating irony in the fact that social justice activists spend a lot of their time making things worse for some of the world’s poorest and vulnerable people.

People who oppose sweatshops, or boycott Walmart for selling goods made in those factories, are well-meaning people who are rightfully disgusted by the working conditions in impoverished countries. But policies have consequences, and quite often the unintended consequences may do more damage than good.

Indeed, the story of industrialized capitalism over the past two centuries is that initially conditions for factory workers are harsh (though not as harsh as their next-best options). But over time, the new employment generates higher incomes than would otherwise be possible. As incomes rise, workers are able to "purchase" better options for themselves and their children. School attendance rates rise with incomes, and education and better health lead to higher productivity. More productive workers can demand higher wages and better working conditions, and the situation improves over time. This has been the story for all industrializing countries. It is sometimes tough to watch the transition, and the process never moves as quickly as we would like it to, but the worst thing we can do is stop the progress of economic activity through boycotts or demanding labor and environmental standards that are too high for the local economies to bear.

Obama on Trade

Today I voted for Obama for president, but I did so with some reticence. On balance, I feel that he is a much more acceptable candidate than McCain, but this does not make him above reproach. One columnist for The Times of India channels some of my concern:

McCain is one of the few American politicians in either party with the courage and conviction to stand up to protectionist populism. By contrast, Obama embodies protectionism.

Look at the accompanying chart. It shows that McCain has voted 88% of the time against bills creating trade barriers, and 90% of the time against export subsidies for US producers. Few other senators have such a splendid record.

Obama has served a much shorter time in the Senate, and avoided voting on many key issues. He has voted against trade barriers only 36% of the time. He supported export subsidies on the two occasions on which he voted, a 100% protectionist record in this regard. ...

Unlike Obama, McCain voted against imposing trade sanctions on China for supposedly undervaluing its currency to keep exports booming and accumulate large forex reserves. India has followed a similar policy, though with less export success than China. But if indeed India achieves big success in the future, it could be similarly targeted by US legislators and, will need people like McCain to resist.

Obama favours extensive subsidies for US farmers, hitting Third World exporters like India. This has been one of the issues on which the Doha Round of WTO is gridlocked. McCain could open the gridlock, Obama will strengthen it.

Obama also favours subsidies for converting maize to ethanol. The massive diversion of maize from food to ethanol has sent global food and fertiliser prices skyrocketing, hitting countries like India. But McCain has always opposed subsidies for both US agriculture and ethanol. While campaigning, he had the courage to oppose such subsidies even in Iowa, an agricultural state he badly needs to win if he is to become president.

There is more at the link, but this commentator isn't the first to express concern over Obama's protectionist leanings. Indeed, some have gone so far as to argue that Obama is actually lying, and if elected would actually follow in W.J. Clinton's footsteps on trade. Austan Goolsbee, one of Obama's chief economic advisors, intimated as much to representatives of the Canadian government after one NAFTA-bashing session earlier in the campaign. Perhaps. But Obama's voting record and rhetoric argue against the idea. One of the many major policy mistakes of the Great Depression was the institution of the Smoot-Hawley Tariff. A similar move at this juncture might be similarly disastrous. In my view, this is a strictly non-partisan issue; regardless of who we personally support for president, we should hope that if Obama is elected he will have learned from history.

The Distributive Consequences of International Trade

Dani Rodrik points out that trade economists often stress the gains from trade and de-emphasize its domestic distributional consequences. I have always found it puzzling that while political scientists have made the Stolper-Samuelson theorem the workhorse of their models of trade politics, trade economists have tended to downplay the domestic distributional consequences of trade. Rodrik points to recent papers by Josh Biven and Robert Lawrence that simulate the impact of trade between the US and developing countries on the relative wages of low and high skill workers in the US.

The Biven paper in a nutshell:
"This paper revisits the insights of Stolper-Samuelson and estimates the impact on American wages of trade flows between the rich U.S. economy and a poorer global economy...Despite a rather conservative methodology, this paper finds that:
• Trade with poorer nations had by 1995 led to a rise in relative earnings of skills vis-à-vis labor of just under 5%,
relative to baseline of no trade with poor nations. This is an amount roughly equal to 12.5% of the dramatic increase in earnings inequality that happened between 1980 and 1995.
• By 2006, trade flows between the U.S. and its poorer trading partners increased relative earnings inequality by just under 7% relative to a no - trade baseline."

The Lawrence paper reaches different conclusions: "while increased trade with developing countries may have played some part in causing greater wage inequality in the 1980s, surprisingly, over the past decade the impact has been too small to show up in aggregate wage data."

More Protectionism

"This year's [really poorly conceived trade bills] are calibrated to attract broader [congressional] support by softening the threat and involving international bodies. In years past, the leading currency bill threatened across-the-board 27.5 percent tariffs on all Chinese goods. The new bills would permit sanctions, but only after significant consultation between the two countries.

"It's a much more conciliatory batch of bills than their predecessors," said Gary C. Hufbauer, a trade expert at the Peter G. Peterson Institute for International Economics in Washington. "It's not slamming the hammer. It's kind of turning the screw." (But who is getting screwed here, Dr. Hufbauer?)

Some analysts expect that this fall, as the election season heats up, one of these bills will gain approval, possibly by the two-thirds majority required to override a presidential veto." (Super-majority support for protectionism is always good news.)

Maybe this reaction by 1,028 economists to the current round of congressional stupidity is OTT, but on the other hand, maybe not (Hat Tip to Greg Mankiw).

The New (Protectionist) Trade Policy

And if you remain unconvinced about why more knowledge of economics is besides the point:

Democrats representing the older industrial regions, where jobs have been lost because of imports of cheap textiles, shoes, machinery and other products made in Asia and Latin America, have generally been opposed to free trade deals.

But others in the party are more open to trade. This group tends to represent high-technology and financial services industries, which are eager to gain markets in fast-growing third world countries.

Can someone say "sectoral model"?

This from commentary on the so-called New Trade Policy agreement just announced in DC in which the Bush Administration agreed to Democrat demands to incorporate labor and environmental components in pending free trade agreements with Peru, Panama, Colombia, and South Korea. This does not augur well for the future, as it is all too similar to the waning years of Clinton.

Does anybody remember the Seattle Ministerial Conference?

Bashing China, Again

A case in point (re Evolution and Protectionism)

"In a rare three-panel subcommittee hearing Wednesday, House lawmakers discussed policy options that might address so-called currency manipulation by China and other countries. The event served as an opportunity for lawmakers on both sides of the aisle to express frustration with China’s undervalued currency and, to a lesser extent, the weakness of Japan’s yen.

Democrats made clear that they intend to push legislation aimed at China, although details are still unclear.

These lawmakers and other critics in the business and labor communities blame cheap imports for China’s skyrocketing trade surplus with the United States and the loss of U.S. manufacturing jobs."

The NYT also has a great piece on the effort to craft a "new trade policy." How much education would it take to transform these legislators into free traders? The one thing they actually could do to balance the current account they refuse to discuss--balance the budget.

Evolution and Protectionism

Protectionism, and the zero-sum conceptualization of international trade upon which it is based, might be an attitude that we have thus far failed to evolve away from. Or so argues Paul Rubin in today's Washington Post. An excerpt:

"Conflict was common in the environment in which humans evolved. As primates, which are a very social order, our ancestors lived in relatively small groups in which everyone knew everyone else. Our minds are adapted to deal with populations of that size. Our ancestors made strong distinctions between members of the in-group and outsiders, and we still make such distinctions today -- social psychologists can create in-group and out-group feelings based on virtually any arbitrary difference between populations.

The in-group and out-group intuitions help fuel opposition to expanded trade and immigration. The public intuitively believes that the beneficiaries of such policies will be foreigners, and it is easy to arouse suspicion about those who are not part of our in-group. When coupled with zero-sum thinking, this is a powerful political tool. For instance, a domestic industry or collection of domestic workers, when having difficulty competing with foreign or immigrant competitors, can use innate dislike of outsiders when advocating for increased barriers."

I am of two minds. On the one hand, the argument has a certain appeal; perhaps all that we need is more economics education. On the other hand, economists are too quick to argue that protectionism is a function of a lack of understanding and seemingly too slow to recognize that protectionism is simply a reflection of the losers from trade capturing public policy. No amount of knowledge can prevent that.

Tariffs: the Regressive "Gender Tax"?

We too often think about the broad consumer surplus loss tariffs impose without thinking much about how these losses are distributed among consumers. That tariffs are regressive (i.e., weigh more heavily on low-income households than high-income households) is commonly known. Less commonly recognized is that, at least in apparel, tariffs also discriminate on the basis of gender.

What I find most amusing about the NYT story is the apparent bewilderment: "But after years of poring over dusty tariff lists, international trade court records and Congressional testimony, lawyers have found nothing that explains why, say, the tariff on an imported wool suit is 8.5 percent for a woman and zero for a man. “It’s irrational,” said Peter Bragdon, the general counsel at Columbia Sportswear, one of the companies suing the government."

No, it's not irrational, it's politics. Resolving this puzzle by showing how these inequities arose would be an interesting paper (or honors thesis). Are these accidental, or do they reflect something systematic about tariff politics?