What is wrong with our system of global trade and finance: Dani Rodrik version

Interesting interview of Dani Rodrik who had warned about this hyper globalisation mania and its repercussions long back.

On free trade agreements he says:

If the trade agreements were about free trade, they would be one sentence long. They are thousands of pages, because they consist of a new set of regulations. And the question then becomes what are these regulations for, whose interests are they advancing.

No country has a completely free trade policy. There is always some management of trade. We don’t let goods come in that don’t satisfy our health and safety standards, that go beyond our regulatory standards, so we always have these controls. It’s never about free trade vs. protection. It’s always about where we should and shouldn’t regulate.

And the same is true about capital markets, and financial globalization. I think we have too easily internalized the norm that financial capital should be free to move without any restriction. There is no justification in economic theory for the idea that free capital mobility is optimal. These are things we know we need to approach pragmatically. There are real decisions that need to be made.

🙂 This is not new for those familiar with Prof. Rodrik’s works. Just that this free trade bit is as straight as it gets.

On Trump:

Like most everything with Trump, I think there is a significant element of truth in the causes that he picks up. He is addressing some real grievances. But then the manner in which he addresses them is completely bonkers. So in the case of Germany, I do think Germany is the world’s greatest mercantilist power right now. It used to be China. China’s surplus has gone down in recent years, but Germany’s trade surplus is almost 9 percent of GDP. And they are essentially exporting deflation and unemployment to the rest of the world.

I think the damage, though, is done to the rest of Europe and not the United States. In addition, it is not a trade problem. It is a macro-economic problem. The solution is to get German consumers to spend more and save less and the German state to spend more and to increase German wages. It is not the trade policies of the US or any other country that is going to be able to address this issue. It is similar to the way Trump has picked up grievances about how trade agreements have operated in the United States. These agreements have created loses, and grievances that have not been addressed, and I think there is a lot of truth to those kind of things, but I don’t think he has any realistic way of dealing with those things.

Hmm..

The entire interview is worth a read. Lots of interesting stuff to think and ponder upon. He says how Europe opened up much earlier to trade and built the insurance mechanisms to safeguard those who were to be hit by trade. Thus, populism in Europe is not much about protection against imports but about immigration. In US trade was followed without any social welfare leading to cries against trade..

All this requires deep understanding of politics and society something which current economics totally fails you to teach..

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