Protecting Workers Without Tariffs | Robert Shiller

Ever since World War II, and specifically since the launch of the General Agreement on Tariffs and Trade in 1947, the United States – both its government and its people – has been squarely in support of free trade. But with a significant minority, recently 39%, of Americans approving of US President Donald Trump’s imposition of tariffs on foreign countries, Trump seems to think the tide has turned, and that voters who still oppose them will like them better once they are in place. He may not be wrong about public opinion. So, why are we seeing enough public support for Trump to launch a US-initiated trade war now? The most likely reason stems from the job insecurity that free trade sometimes creates, and the sense of injustice that arises when one is among the losers. Most people do not want charity – they want to work – which is why Americans responded well to “Make America Great Again” and were lukewarm to former President Barack Obama’s “spread the wealth around.” But, as political scientist John Ruggie argued in 1982, free trade is politically viable only if governments intervene to stabilize citizens’ economic lives against the possible shocks. Likewise, the economist Dani Rodrik has demonstrated that economies that are open to free trade spend more relative to their size on goods and services for their citizens. In other words, high-trade countries are not small-government countries: it is just the opposite. And yet programs like Trade Adjustment Assistance in the United States, a government policy to partially reimburse people who lost their jobs due to free trade, do not always garner public support, primarily because these programs can look like redistribution. Also, the assistance is temporary. Losing one’s job in the US steel industry due to foreign competition may look awfully permanent, but it is hard to imagine governments subsidizing displaced workers for decades. To revive popular support for free trade, then, we must find new ways to insure workers against the risks of a globalized market. Fortunately, there is precedent for in-kind government redistribution that does not feel like welfare. For example, when the government spends tax money on universal public education, everyone benefits, and accepting it seems more patriotic than abject. Another solution is to have the government subsidize private livelihood insurance to help cover the cost of jobs lost to foreign trade. As I argued in my 2003 book, “The New Financial Order,” this solution could also encourage occupational risk-taking and economic growth. Trump’s trade war is an international tragedy. But it could have a happy ending if eventually it reminds us of the risks that free trade imposes on people, and if we improve our insurance mechanisms to help them.


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