Gains from Trade -- one of the best ever expositions

Ben Muse summarizes a recent piece from the Washington Post, "The Payoff From Globalization" by Gary Clyde Hufbauer and Paul L.E. Grieco,

...we estimate that the combination of shrinking distances -- thanks to container ships, telecommunications and other new technologies -- and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year (measured in 2003 dollars), or about 10 percent of gross domestic product. This translates to a gain in annual income of about $10,000 per household.

Unfortunately for the cause of continued liberalization, Americans do not receive this money as a check marked "payoff from globalization." Instead, the payoff is hidden within familiar channels: fatter paychecks, lower prices and better product choices...

Despite the huge payoff to the United States, maintaining political support for trade liberalization has never been easy. ... Large gains are widely dispersed, and much smaller private losses are highly concentrated. Surveying several estimates, we arrive at a middle-of-the-road figure of roughly 225,000 trade-related job losses per year. Most dislocated workers find new jobs in six months, many far sooner; but some are unemployed for an extended period. Even workers who are re-employed may face significant pay cuts. Taking these features into account, we estimate that the lifetime costs of a year's worth of trade-related job losses is roughly $54 billion, about $240,000 per affected worker.

This is a huge loss on a personal level, but only about 5 percent of the annual national gains from liberalization. Moreover, a rough estimate of the adjustment costs to agricultural landowners suggests that the progressive removal of trade barriers and farm subsidies over a decade could lower agricultural land values by $27 billion a year. The strident opposition to CAFTA from sugar barons such as the Fanjul family confirms that this is a sensitive matter. Yet again, lower property values are a one-time private loss and a fraction of national gains.

When Canada negotiated its moves toward freer trade, it implemented a "transitional adjustment programme" to ease some of the pain for those who suffered losses from the increased competition. Doing so was a wise political move, but it also reinforced the notion that the gubmnt should protect us from all downside risks. I, personally, like the idea of a safety net; but I don't think it should be so high that it drastically reduces the size of the pie.