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From The Editor
James M. Borneman, Editor In Chief

Finally, A Fresh Look At Free Trade

James M. Borneman, Editor In Chief

A merican textile “fair trade” advocates have long fought an uphill battle to bring logic to US trade policy. Having suffered for years at the hands of an elitist, economic-theory-driven Washington trade policy machine, fair trade voices may finally get the respect they deserve.

Keep in mind the unnerving nature of economics — it is philosophy that mascarades as science just because it uses a little math. When you enter the trade debate and question anything, blood pressures rise and you are branded a protectionist.

Arguing trade policy economics has been a simple four-step program among mainstream free trade thinkers. One: Regardless of what anyone says, put them in one of two camps — protectionist or free trader. Two: Polarize the argument quickly, demonizing all calls for trade restraint, adjustment, management, enforcement or sanity as protectionist propaganda. Three: Quickly mention comparative advantage, “a tide that raises all boats” and the Smoot Hawley Tariff Act as ways to bolster the free trade theory. Four: Declare a free trade victory based on your opponent’s theoretical ignorance and lack of understanding of basic economics.

Well, times may be changing. A recent Business Week article that ran within its special report on China was titled “Shaking Up Trade Theory: For decades economists have insisted that the US wins from globalization. Now they’re not so sure.”

The article still holds the line on free trade but it also mentions Paul Samuelson, “the 89-year-old professor emeritus at Massachusetts Institute of Technology, who largely invented much of modern day economics.” Samuelson “questions whether rising skills in China and India necessarily will benefit the US.”

Apparently, Nobel laureate Samuelson stirred the pot by penning an article for the Journal of Economic Perspectives that called into question some of the basic laws of free trade. In Business Week, he stated, “Comparative advantage cannot be counted on to create ... net gains greater than the net losses from trade.”

This is outright free trade heresy, and music to the ears of proponents who want a fresh look at trade theory.
The theory of comparative advantage is a difficult concept to explain. It has its roots with David Ricardo, who formalized the argument in 1817. As theories go, this is a big deal for economists and has become the cornerstone of trade economics and policy. People who can’t even explain it tend to throw it into an argument as if it were one of the Ten Commandments.

Now, nearly 200 years since Ricardo, and after significant technological and global advancements, maybe it’s time to take a fresh look at free trade underpinnings. You have to give Samuelson credit for challenging a core belief, particularly late in his career, that could put his lifelong well-earned reputation in jeopardy.

2005 will be a year of great challenges for the US textile industry, and many tough decisions will have to be made. But maybe — just maybe — some trade policy logic will enter the picture. Post-election Washington is a different place — or is it?

January 2005