An eroding consensus.
Photographer: Chris Ratcliffe/Bloomberg
Economists have lately been rethinking free trade. They’re right to do so — and not just because China’s emergence came as such a big shock to U.S. workers.
There used to be a near-universal consensus among academic economists that the best trade policy for any country was to unilaterally remove all barriers and distortions, even if trading partners didn’t do the same. As long as distributional issues could be handled — by helping people who lost jobs to competition — free trade was seen as a no-brainer.
This cozy consensus has been challenged by analyses of trade with China in the 2000s. During previous episodes of globalization, workers displaced by international competition had found new jobs for similar pay. But when trade was opened up with China, a fifth of humanity — highly productive workers with very low pay — suddenly entered the labor market. The speed and extent of the resultant hollowing out of U.S. manufacturing appears to have been too much for many workers, who tended to get stuck in lower-paying jobs or on the welfare rolls.