"The Case for Free Trade Is Weaker Than You Think" - Grep IP, Wall Street Journal

http://blogs.wsj.com/economics/2016/04/11/the-case-for-free-trade-is-weaker-than-you-think/

            This article brings up the point that free trade may not be better then protectionism in all cases. The Chief Economics Commentor of the Wall Street Journal, Greg IP, talks about a paper written by Larry Summers (former secretary of state) and two others authors. Their paper explains conditions under which it might be more beneficial for a country to keep imports out. One condition being that there is a weak demand. If there is too little demand, a country might have a trade surplus, and workers will loose their jobs. Summers and his co-authors argue that this can create secular stagnation (no ability for economic growth).

 Greg IP uses China as an example of this. He says that if China consumes less and saves more, then it will need to import less from the U.S. This will result in a decreased domestic output and lower employment rates in the United Sates. Normally, the central bank could lower interest rates. But if China is saving, it will have excess savings which would make interest rates close to zero (which would drive down the U.S. currency). The central bank would not be able to boost demand enough to employ these workers somewhere else.

The contents of this article relates to different readings from class such as, “Theories of International Political Economy”. The reading on Mercantilism and the Realist Perspective on page 54 says that mercantilism explains that states try to “reduce its imports to a minimum; and it seeks to promote its exports in order to clear a trade surplus.” (Paquin, 54) Because all states can’t have a trade surplus, conflicts will arise. This relates to the article, which is talking about how a trade deficit with the U.S. and China can lead to conflict and affect policies choices regarding free trade and protectionism. If China imports less from the U.S. and the U.S. can’t make up for this loss in demand, it may put us at an economic disadvantage and cause us to change some of our trade policies.
          This can also be related to the concept of Economic Nationalism. Alexander Hamilton was one of the first who helped develop the ideas of protectionism. He believed that strengthening the American economy was a key to independence and security as a nation. (Paquin, 55) Hamilton thought it was best for the U.S. to limit American dependence on other nations. We can see that Donald Trump believes in similar concepts. The beginning of the article mentions how Donald Trump threatens to increase tariffs on Mexico and China and have more protectionist policies. If we look at this through a nationalist lens, these policies may help to protect the United States' power by decreasing our dependency on other nations.  

                             Work Cited

                                                                                                                                             Paquin, Stéphane. Theories of International Political Economy: An Introduction. 1st ed. Ontario: Oxford UP, 2016. Print.

Ip, Greg. "The Case for Free Trade Is Weaker Than You Think."  Wsj.com, 11 Apr. 2016. Web. 18 Sept. 2016. <http://blogs.wsj.com/economics/2016/04/11/the-case-for-free-trade-is-weaker-than-you-think/>.