Should Slowing Trade Growth Worry Us?


Paul Krugman over at his NYT blog, The Conscience of a Liberal:

I’ve spent most of today both under pressure to get an assignment out the door and under the weather; still sniffling, but the piece has been emailed off, so a bit of time for the blog. Except I feel like taking a vacation from both the shutdown and Obamacare. So let’s talk about trade — specifically, a recent post by Gavyn Davies, “Why world trade growth has lost its mojo,” which expresses deep concern over the fact that in recent years trade hasn’t grown much faster than global GDP. He suggests that hidden protectionism may be partly to blame, and that this may have large economic costs.

So, I’m going to disagree with both propositions.

First, on the general point of the welfare gains from trade: I’m basically withDani Rodrik here. Standard economic models do not imply huge gains from trade liberalization. You can make arguments that suggest bigger gains, but they’re highly speculative, and the credulity with which people accept dubious nonstandard arguments for big trade gains contrasts oddly with the gimlet eye cast on arguments for, say, industrial policy. You should definitely not accept estimates that every dollar of additional trade raises world GDP by 46 cents — an extremely high number — as being definitive.

But my main thought, reading Davies’s piece, was that the belief that trade must always expand much faster than output, and that there’s something wrong if it doesn’t, doesn’t stand up to careful scrutiny.

More here.