Dismal Hubris

The intellectual history of free trade and its downfall

The Trump administration’s abrupt and monumental assault on free trade has shocked even supporters who guaranteed it would never happen. The tariffs would never be universal, they said; they would be selective and targeted; they might not even happen.

Well, they did, and in the chaos it’s worth looking at how we got here. The neoliberal free trade ideology exploded in the 1990s under the aegis of the Clinton administration, an army of well-credentialed economists mapping out NAFTA, GATT, and the WTO. One of the biggest public and private boosters was future Nobelist Paul Krugman, but his main opponents then were the leftists who eventually went on to cause real unrest at the Seattle WTO protests in 1999.

WTO riots, 1999

Here’s the gist of the argument Krugman made many times:

The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard--that is, the fact that you don't like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

In short, my correspondents are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty.

Paul Krugman, In Praise of Cheap Labor (1997)

Putting aside whether Krugman was right or wrong, what’s important is that Krugman’s argument was based in ethics: free trade wasn’t just efficient and self-interested, it was morally correct. Once a viable Communist alternative ceased to exist as an alternative to demonize, this sort of guilt-tripping took its place. It was, in a word, proto-“woke.” In today’s terms, to oppose free trade was to be classist, racist, and selfish.

As arguments go, it’s a poor one. The moral standard is hard to maintain. By 2013, free trade arguments had become vulgarized to the point where a Bangladesh factory collapse that killed 87 workers spurred Matt Yglesias to write:

Bangladesh may or may not need tougher workplace safety rules, but it’s entirely appropriate for Bangladesh to have different—and, indeed, lower—workplace safety standards than the United States. The reason is that while having a safe job is good, money is also good.

Matt Yglesias, International Factory Safety (2013)

Again, putting aside whether Yglesias is right or wrong, the very formulation of this argument eradicates Krugman's “moral duty” argument. Even if there somehow is a moral duty to allow worker-endangering safety standards, it goes so contrary to intuition that arguing for it glibly and self-righteously is a non-starter.

The aftermath of the Bangladeshi factory collapse, 2013

Ultimately, though, those who care about third world workers and act on those concerns are a distinct minority. More relevant was whether free trade was immiserating Americans. That is not an easy question to answer, but when Trump, Lutnick, and Navarro propose that free trade helps other countries and hurts Americans, Krugman’s ethical arguments are useless.

Having ceded the moral high-ground, the only thing that remains is theoretical justification. Some years earlier, Krugman had bemoaned that so many of his opponents literally didn’t understand economic theory:

Anyone who has ever made the effort to understand a really useful economic model (like the simple models on which economists base their argument for free trade) learns something important: The model is often smarter than you are…People who have understood even the simplest, most trivial-sounding economic models are often far more sophisticated than people who know thousands of facts and hundreds of anecdotes, who can use plenty of big words, but have no coherent framework to organize their thoughts…If you have taken the time to understand the story about England trading cloth for Portuguese wine that we teach to every freshman in Econ 1, I guarantee you that you know more about the nature of the global economy than the current U.S. Trade Representative (or most of his predecessors).

Paul Krugman, The Accidental Theorist

The model that justified free trade wasn’t just useful and correct but “simple.” I believe economists publicly pivoted to proto-“woke” moral high ground arguments because they sounded far less condescending and elitist, but their own convictions remained rooted in their models. Were the models correct? No model is ever completely correct, but as Krugman says, most people never understood them anyway. It doesn’t really matter.

Ultimately, free trade remained an article of faith for the political and media establishment even as its justifications eroded. This is the typical fate of any elite dogma, and it survives until external discontent rises sufficiently to wash away the dogma—at which point the defenders have only one argument left to them: “Look, bad things are happening.”

So now we have gotten down to brass tacks: abandoning free trade is bad because it makes the stock market drop and makes prices go up. That is certainly a powerful and easily comprehended argument and many could decide it is correct. But it also signals the end of a certain kind of hubris among policy elites: the idea that in a hyper-networked age, wonky model-driven policy can endure in the absence of public support (or even public comprehension). Free trade and deregulation dogma endured through the 2008 financial crisis because social media and alternative “news” had not yet made inroads into an ecosystem where traditional elites still exerted top-down influence and could help the dogma endure. Eight years later, Brexit showed just how much that influence had collapsed. Sixteen years on, it shows no sign of returning.