This academic research changed my mind about China and trade policy

Courtesy of Vox. Matthew Yglesias

Years ago, I heard an argument from a guy who later went on to serve at a high level in the Obama administration that I thought was really smart and persuasive: American politics massively overstates the importance of trade policy in causing the big shock to the American economy that was induced by foreign manufacturing in the early 21st century.

The reason you can tell is that the big change in trade policy regarded Mexico (NAFTA, in other words), but the big change in terms of actual trade regarded China and the United States didn’t do anything to lower tariffs or other barriers to Chinese imports. The result is a kind of nonsensical deadlock in which people talk a lot about NAFTA, which was a real policy change, but are mostly angry about second-order consequences of trade with China, the country with which the United States runs far and away the biggest trade deficit.

The problem, on this account, is that Chinese exports surged primarily because China got better at making stuff, not because of anything that happened in American politics.

I found this convincing and have believed it for years. I’ve repeated it to other people, some of whom may also have found it convincing. And over the weekend I read a piece of research that convinced me I’ve been wrong this whole time. We didn’t lower tariffs on Chinese goods, but we did make a subtle policy change right at the end of the Clinton administration that’s made a big difference.

Read more here.

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