In her interview with the Financial Times last Friday, Senator Clinton said,
We have benefited through most of the 20th century from trade. It has helped to raise American standards of living, it has helped to create jobs. And I agree with Paul Samuelson, the very famous economist, who has recently spoken and written about how comparative advantage as it is classically understood may not be descriptive of the 21st century economy in which we find ourselves.
Her point seems to be that free trade has been good for the U.S. in the past, but that circumstances have changed - specifically the law of comparative advantage no longer works for us. An argument for protection is implicit in this formula. This Samuelson reference is a reference to an article by Samuelson in a 2004 issue of the Journal of Economic Perspectives.
Samuelson did not repudiate the law of comparative advantage there, but used it an analytical tool. He did point out that under some circumstances, when trading is allowed between nations, technological change in a trading partner could work against the U.S., leaving it worse off than it would otherwise have been without the technological change. He did not say that the appropriate policy response was protection. In fact, in the epilogue to the paper he proposed a potential defense of a liberal trading regime:
...sometimes free trade globalization can convert a technical change abroad into a benefit for both regions; but sometimes a productivity gain in one country can benefit that country alone, while permanently hurting the other country by reducing the gains from trade that are possible between the two countries...
It does not follow from my corrections and emendations that nations should or should not introduce selective protectionisms. Even where a genuine harm is dealt out by the roulette wheel of evolving comparative advantage in a world of free trade, what a democracy tried to do in self-defense may often amount to gratuitously shooting itself in the foot. A pragmatic and scientifically more correct brief for globalization might go as follows.
If the past and future bring both Type A inventions that hurt your country and Type B inventions that help - and when both add to world real net national product welfare - then free trade may turn out pragmatically to be still best for each region in comparison with lobbyist-induced tariffs and quotas which involve both perversion of democracy and nonsubtle deadweight distortion losses. In 1900 free traders proclaimed, "Tariffs are the Mother of trusts." In this millennium a more pregnant truth may be: "Tariffs are the breeder of economic arteriosclerosis."
Greg Mankiw goes into more detail about what, exactly, Samuelson said about comparative advantage: Is comparative advantage obsolete? (Dec 4).
While the core of Samuelson's paper deals with overall national welfare in a comparative static analysis, in a part of the epilogue following the extract above, he points out that his comparative advantage analysis abstracts from potentially significant distributional impacts of trade.
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