Judis: Where do you see the disconnect?
Rodrik: Trump’s proposed remedies to the grievances picked up from angst and the anxiety caused by job losses have little to no chance of working. What he promised was way overboard, some radical, for instance building thewall and imposing 35% tariffs on all imports from china. At least he is not doing this things. A point might reach when we will look at his promises and wonder what is happening to them.
Judis: What do you think a president concerned about trade do? What are new types of trade agreement that are worth pursuing?
Rodrik: What the world needs is a rebalancing in the economy. This can be done in three efficient ways:
One is moving from benefiting capital to benefiting labour. The current system favours capital leaving the mobile professional class and labour to disproportionately bear the consequence. Due to this bias towards capital, all kinds of distributional costs have been created.
More so, there is a need for rebalancing from an excessive focus on global governance to a focus on national governance. Intellectual and policy elites believe that the current global problems faced in the US originate from lack of global agreements thus the need for more global agreements. However, most of the economic problems originate from the problems in local and national governance. If national economies were run efficiently, they could generate full employment, satisfactory social bargains and good distributive outcomes; and an open and healthy world economy as well.
The third part for is rebalancing in negotiating trade agreements, focusing on areas that have first order economic benefits rather than second or third order. Global agreements have in the past not only generated large distributional effects — large gains for exporters, banks or investors, but also large losses to rest of society – and small net benefits, if any at all. These agreements addressing trade and financial globalization have already inreased most of the big efficiency gains.
One major virgin area of globalization where barriers are still very large is labour mobility. Expanding worker mobility across borders, in a negotiated, managed manner, would produce a large increase in the size of the economic pie. This would have some redistributive effects, and would likely hurt some unskilled native workers in the rich nations but the redistribution in this area per dollar of efficiency gain generated is small – much smaller than with trade liberalization, greater capital mobility, or any other area of the world economy. This may seem paradoxical, but it is an economic fact. This is a major reorientation in the global negotiation agenda that needs to be put into perspective.