“It has sometimes been remarked that asking five economists a question will generate 10 different answers,” Larry Summers, then the secretary of the Treasury, observed at a hearing of the House Ways and Means Committee nearly 25 years ago. On the issue the committee was discussing that day, however, “there has been only one answer.” He was speaking of “welcoming China into the global economic system,” which economists guaranteed would bring better jobs and greater prosperity to Americans.
It didn’t work out as promised. Rather than improve the fortunes of American workers, globalization has encouraged companies to shift their production to countries where governments hand out favors and workers come cheap. U.S. industrial output has, at best, remained flat since the mid-2000s and manufacturing workers in that sector have been getting less productive for more than a decade.
The United States has fallen behind China and others in fields from semiconductors to batteries to commercial airliners, just as business leaders like Andy Grove, Intel’s chief executive back in its glory days, cautioned it would. The trade deficit has exploded, even in the “advanced technology products” that were supposed to benefit from access to new markets. Across the country, communities have collapsed, and deaths of despair have surged.
Which is why it’s remarkable to see economists invoking the same faulty assumptions and models that got us into this mess, in order to make the case against Donald Trump’s proposed tariffs. Michael Strain, director of economic policy studies at the American Enterprise Institute, says they “would be a disaster” and “very, very bad.” Adam Posen, president of the Peterson Institute for International Economics, calls them “lunacy” and “horrifying.” All 39 academic economists surveyed by The Wall Street Journal “strongly oppose” the idea.
It all makes me think of a situation that George Costanza, the “Seinfeld” sad sack, found himself in one episode. “It became very clear to me, sitting out there today, that every decision I’ve ever made, in my entire life, has been wrong,” he tells Jerry. “Every instinct I have, in every aspect of life, be it something to wear, something to eat, it’s all been wrong.”
“If every instinct you have is wrong,” Jerry reasons, “then the opposite would have to be right.” So George decides to change course. Instead of his usual tuna on toast, he orders chicken salad on rye and immediately lands a date as a result. Interviewing with the New York Yankees, instead of praising George Steinbrenner’s management he launches into a critique, and gets his dream job.
It would be wonderful to see economists willing to try a new course when the one they’ve pursued has failed so spectacularly for so long. Instead, they are doubling down on their mistakes.
Their most basic mistake is the continued reliance on the theory of “comparative advantage.” The theory, a mainstay of Econ 101 courses, says that countries should specialize in what they are relatively more efficient at and then benefit from trading the resulting output. An advanced economy like the United States might lose its textile manufacturing, say, but become the worldwide hub for the production of cutting-edge computer chips.
The theory works great in the classroom, but in reality it wasn’t just T-shirts that ended up going overseas. The most sophisticated industries have left too. The United States ran consistent trade surpluses in advanced technology products until China joined the World Trade Organization. In 2002, that surplus flipped to a deficit that in 2023 exceeded $200 billion, with the nation importing more than $3 of advanced tech products for every $2 it exported.
To spin this failure, some free traders have tried reframing their case in terms of individual freedom. Thus, “real globalization” is not “container ships, wonky terms like trade deficit, or dry governmental agreements,” it is “billions of humans freely cooperating for mutual gain,” according to a new project from the libertarian Cato Institute. Similarly, the University of Michigan professor Betsey Stevenson, formerly a member of President Barack Obama’s Council of Economic Advisers, tried to reassure MSNBC viewers in November that “it’s not countries that trade, it’s people that trade.” adding: “I get a great new beverage refrigerator from China and they maybe get some economic services from me, or some insight into economics. That’s trading.”
It would be surprising if many of the Uyghurs performing forced labor in the supply chains of China’s refrigerator exporters are doing so in return for economic advice from Ms. Stevenson.
Our enormous trade imbalance can exists only because a large share of the foreign goods entering the United States are never exchanged for American-made goods. Rather, each year we let other countries gobble up another $1 trillion of our real estate, corporations and i.o.u.s, promising that we will pay some day. As Warren Buffett once warned, “We have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.” In the process we’ve erased millions of livelihoods.
Economists don’t know what to make of these imbalances. “Foreign trade deficits are typically thought of as self-correcting,” the Federal Reserve governor Edward Gramlich assured the world back in 2004. Jason Furman, a colleague of Ms. Stevenson’s at the White House, went further, recently declaring that “economists understand imports are actually the good thing that is what we enjoy, it’s the benefit we get from trade. Exports are the unfortunate thing we do just so we can get those desirable imports.” The fewer manufacturing jobs in the United States, by this logic, the better.
Committed to their discredited framework, economists continue relying on the models built upon it. The Peterson Institute, for instance, uses a model known as G-Cubed to predict that the United States would suffer higher prices, lower incomes and reduced manufacturing output if it withdrew the “permanent normal trade relations” granted to China in 2000. Economists have been using that model since the 1990s to produce studies guaranteeing that free trade will always work out well for all sides. The Budget Lab at Yale has produced its own negative assessments of Mr. Trump’s proposals using the Global Trade Analysis Project model, which one recent Federal Reserve study warned “had essentially zero predictive accuracy” in its efforts at forecasting results from previous trade deals.
As the hit man Anton Chigurh asks his next victim, Carson Wells, in Cormac McCarthy’s “No Country for Old Men,” “If the rule you followed brought you to this, of what use was the rule?”
Few things are harder to change than the minds of experts who have staked their reputations on a particular theory. Even in the most objective fields, the physicist Max Planck observed, “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it.” Fortunately, a democracy does not have to wait so long.
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