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Who benefits from trade?
Brad Setser has a very good post on trade. His conclusion:
I understand Mancur Olsen’s argument. But to me, it seems a bit dated. Trade now generates concentrated as well as diffuse winners and concentrated as well as diffuse losers.
Posted by Tyler Cowen on September 13, 2006 at 07:15 AM in Economics | Permalink
Comments
That may be true, but as long as trade restrictions produce the same concentrated winner and diffuse loser effect, they will dominate free trade in the political arena.
Posted by: asg at Sep 13, 2006 8:12:11 AM
Milton Friedman's point is more valid. Those who support protection most
are powerful incumbents. The concentrated interests who benefit most from
free markets are the businesses that do not yet exist.
Posted by: Chris at Sep 13, 2006 10:22:19 AM
Best sentence from Brad Setser's post
"Feckless congressmen and congresswomen don't understand that the American economy is cushioned from their fiscal policy stupidities by the ability of the U.S.government to sell bonds internationally on a jaw-droppingly unbelievable scale."
Posted by: joan at Sep 13, 2006 10:57:05 AM
joan -- that sentence is actually by Brad DeLong.
asg -- Setser's point is that the liberalization of those restrictions produces concentrated benefits to firms that organize the global supply chain. These firms are an important force that may counterbalance the firms accruing concentrated benefits from protectionism. Moreover, as Richard Baldwin has noted, the Melitz (2003) model implies that some liberalization will spur further liberalization if these high-productivity exporting firms have political sway. You can find the full argument at my blog.
Posted by: Jonathan Dingel at Sep 13, 2006 1:20:08 PM
Tyler, in Econ 101 your question has a simple answer: all consumers and in the short run some producers but in the long run most producers (since we are all consumers and producers then almost all of us benefit from trade in the long run). Indeed, in the short run some producers are losers but their ability to prevent trade reforms depends on the political system. Mancur believed that in most systems they have the ability to prevail, but there are many examples of successful trade reforms. For example, in Chile the drastic trade reform of the military government succeeded despite the strong resistance of many losers whereas the ongoing trade reform (through bilateral free trade agreements, the last one with China) is succeeding because losses are minimized by safeguards and gradual implementation.
Anyway, if you want to assess who is benefiting from a particular trade reform or policy, a "partial equilibrium" approach may be very misleading and unfortunately a "general equilibrium" approach is costly to undertake. Please remember this when discussing China's domestic and international trade.
Posted by: Edgardo at Sep 14, 2006 8:02:00 AM
