Competitiveness matters Book

I read this book many years ago. It very relevant now in terms of understanding Trump and the MAGA crowd. Essentially, (and this is my summary mixed with 10 or 15 years of my own thoughts) this book points out that the efficiency gains from trade are apparent to virtually all people who are educated enough to have read Adam Smith. But, politicians find it difficult to support free trade because the loudest voices tend to be the small groups that stand to loose (coal miners are a very small part of the American population), while the general population doesn’t care enough or notice general price decreases to make trade their single most important election criteria. In other words, coal miners go on strike, but the general population doesn’t vote someone out of office because TV prices go up 25%. So, Congress has put in place structures, mechanisms, and institutions that allow them to reduce political pressure on them. For example, the US Trade Representative has a lot of autonomy, which allows members of Congress and the president to say that they are not negotiating a trade deal. The USTR is not elected and therefor shielded from political pressure. The USTR then negotiates with each special interest group and gets, for example, agricultural interests to back the deal that hurts the coal industry or intellectual property interests to back a deal that hurts manufacturing interests. And society as a whole benefits.

What I realize now is that unemployed coal miners don’t have the Capitol to buy a farm and assembly plant works will temperamentally never be suited to learning how to market iPhones to the Chinese market. Just as importantly, while tariffs on TVs are easily quantified and enforced, it’s much harder to quantify and enforce stolen IP rights. So, the benefits of free trade have accrued to everyone as a whole, but with greater incremental benefits to the Chinese in relation to the United States and greater incremental benefits to American white collar workers with significant costs to American blue collar workers.

In the long term, this is shifting wealth from the lower middle class to a much smaller group of wealthy individuals. A significant increase in the GINI coefficient contributes to the political instability and class polarization. In other words, a significant percentage of the market capitalization of Google needs to go toward somehow supporting the coal miners of West Virginia who will never—no matter how much money is spent on job retraining—be able to learn java script.

It also strengthens a militarily confrontational power at the expense of Western democratic values like political and social freedoms. This means that a significant percentage of Chinese military hardware was paid for with intellectual property stolen from Google.

And yet, simply raising tariff barriers and engaging in trade wars will decrease the overall wealth of all countries that engaged in free trade. Understanding the Byzantine ways in which American Trade Politics was designed to work will increase the chances that we will preserve the benefits of free trade while reducing the social impact of free trade agreements.