Free Trade Under Fire by Douglas A. Irwin Princeton University Press * 2003 * 257 pages * $17.95 paperback
According to Douglas Irwin, free trade is under fire because some groups believe that they do not participate in the accumulation of wealth that trade brings. Others oppose it because they believe that trade agreements subvert national sovereignty and threaten to harm workers and the environment. Irwin, professor of economics at Dartmouth and long-time advocate of free trade, intends with this book to show the benefits of free trade and evaluate the arguments against it.
A common argument against free trade is that imports destroy jobs. Irwin admits that "imports do indeed destroy jobs in certain industries." But imports are necessary to finance exports, he argues. Irwin observes that "all of the dollars that U.S. consumers hand over to other countries in purchasing imports . . . eventually return to purchase either U.S. goods (exports) or U.S. assets (foreign investment)." Therefore, "the overall effect of trade on the number of jobs in an economy is best approximated at zero."
When protectionists advocate import restrictions, they disregard their hidden costs. One cost is the jobs lost in export industries and industries that buy imported inputs to make final goods. "According to one study," reports Irwin, "import quotas in the Steel Revitalization Act . . . would protect 3,700 steel jobs but cause the loss of anywhere from 19,000 to 32,000 jobs in the steel-consuming sector." Blocking imports to save jobs is also wrongheaded because it raises prices to consumers. Here Irwin cites a study concluding that consumers pay an extra $140,000 yearly for each job protected by textile-import quotas.
Nor does Irwin have any patience with policies designed to "soften the blow" of import competition. The government provides income assistance, but the displaced workers who receive it merely lengthen their spell of unemployment. As for training programs, Irwin bluntly says that "there is little evidence that any government training program works well."
Irwin also analyzes the legal attacks against free trade. One strategy is to accuse foreign exporters of "dumping" goods in U.S. markets. The Commerce Department finds dumping whenever the price of an import is "less than fair value." Read Irwin's description of how the department computes "fair value" and prepare for a case of nausea. It has nothing to do with whatever buyers and sellers voluntarily negotiate. The department almost always decides that the foreign exporter is dumping and levies "countervailing duties."
Industries struggling against competition from imports also seek protection through the "escape clause," which provides "a temporary exception to any negotiated tariff reduction. …