Steven Pearlstein knocks the cover off the ball in today’s WaPo. A definite home run from someone who’s in touch with reality. Hmm. Where to begin?

“Ever since David Ricardo constructed his simple, two-country, two-product analysis back in 1817, all right-thinking people have understood that trade is good.

“Economics has developed considerably since then, but the logic of free trade has remained essentially unchanged. Therein lies a problem. Because in the real world of many countries and many goods, of multinational corporations and the free flow of technology and capital, ‘free trade’ may not be the win-win proposition that economic theory suggests.”

Rounding second…Pearlstein cites Intel’s recent decision to build an advanced $2.5 billion chip fabrication plant in China and lays out the reason for questioning the “win-win” chorus of free traders.

“It would be one thing if the Chinese had developed the capacity to make advanced microchips on the basis of their own investment and ingenuity. But it is quite another when the technology for the chips and chip production has been created by American researchers and American companies, and transferred wholesale to a developing country that makes no secret of its intention to use that knowledge and experience to improve its own industry.”

In fact, he points out Intel’s decision to build the plant in China has little to do with lower labor costs, but instead a rumored $500 million subsidy.

“…there is a name for this kind of economic pump priming — strategic trade — and economists have known for decades that when pursued by a developing economy, it can largely negate the benefits of trade to a developed country like the United States.”

That folks is the real world we’re operating in today. One with little consequence for China, Japan and others who rely on things like illegal subsidies, currency manipulation, and in the case of China a lax enforcement of anti-piracy measures. BUT tremendous consequences for American workers and companies.

“Does this mean we should shut down trade or investment with a country like China? No. But it does suggest…that trade has morphed into something more complex called globalization and that we need mechanisms to ensure the benefits are well distributed, not only between countries but within them.

“Contrary to what you hear from editorial writers and other free-trade ideologues, it is not ‘protectionist’ for the United States to impose countervailing duties on imports from a country that subsidizes exports and keeps its currency pegged to the dollar.

“It’s not ‘anti-business’ to toss out a tax code that encourages multinational corporations to invest overseas and replace it with one that gives tax preferences to companies that create high-value-added jobs in the United States.

“And it is not ‘class warfare’ to raise taxes on those who have benefited from globalization to pay for health care, wage insurance and retraining of workers who have lost their jobs as a result of globalization.”

And, as Pearlstein brings it home in the last paragraph, don’t mind the cheering in the background. It’s just the AAM staff.

“There is a reason that, when it comes to trade and globalization, more Americans believe Lou Dobbs than Hank Paulson and Ben Bernanke — and it’s not because they’ve been bamboozled. The reason is that Americans perceive, correctly, that in recent years liberalized trade has not delivered as promised, that education alone is not the answer, and that neither party has come up with economic policies as tough and effective as China’s.”

Clearly, Pearlstein is living in the real world. Let’s hope we can get our policymakers to join him there.

This entry was posted on Wednesday, April 25th, 2007 at 4:46 pm and is filed under Holding China Accountable, Currency Manipulation, Economic Security, Enforcing Trade Laws. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.