As Globalization’s Benefits Grow, So Do Its Skeptics

For the past few years, the world economy has been growing faster than it has for decades, and that growth has been spread across the globe. Yet accompanying this prosperity is mounting skepticism about globalization –– the unfettered flow of goods, services, people and money across borders. The current round of world-trade talks is stalled, and the Democratic Congress is toughening its conditions for blessing Bush-backed trade pacts with Panama, Peru and Colombia, hardly economic powerhouses.

Free trade has never been popular. Dwight Eisenhower struggled to restrain the protectionist wing of the Republican Party during the 1950s. But why such resistance to free trade now, particularly in the U.S.? After all, the American economy has been growing for more than five years, and the unemployment rate is a comfortably low (unless you're out of work) 4.5%.

Partisan politics plays a role, of course. Some Democrats figure if President Bush is for something, they're against it. But that's a small part of the story. Elected politicians, even some Republicans, see widespread voter angst, much of it well-founded, about the unsettling pace of globalization and technological change. And those who see trade as a proven way to boost living standards around the globe are fumbling their efforts to find a convincing response to those worried about their livelihoods and their children's.

But why now?

Free trade in decades past wasn't sold so much on the economics but as a way to achieve a foreign–policy end. After all, the economics of trade have always been a hard sell. Even its most fervent admirers concede trade creates winners and losers. Franklin D. Roosevelt's secretary of state, Cordell Hull, led the pre-World War II effort to lower tariffs because he believed trade led to peace. After World War II, the European Union was created to avoid another war between France and Germany, and the U.S. pursued trade deals to win the Cold War. And while President Bill Clinton talked loudly about the jobs the North American Free Trade Agreement would create, his Treasury secretary, Lloyd Bentsen, saw the trade pact as a way to assure a pro-U.S. regime in Mexico.

"Today," says Douglas Irwin, a Dartmouth College trade historian, "there is no major foreign-policy reason to be for trade." For some reason, few in the U.S. see trade with China as a foreign-policy tool to influence that rising power. And post-Sept. 11 paranoia has increased Americans' fear of foreigners.

Changes in the global economy aren't making the case for trade any easier. A recent Wall Street Journal/NBC News poll found only 35% of those with at least a four-year college degree believe "that the U.S. is benefiting from the global economy." And these people are more likely to be winners.

For the first time in generations, says Lawrence Summers, the former Treasury secretary, the U.S. is trading on a huge scale with places where wages are 20% or less of American wages. "We've never had that before on as large a scale," he says. That's unsettling. So is the pace of all this. "Because of the Industrial Revolution, within a single human life span (then only about 40 years), it was possible to imagine that living standards would increase by 50% to 75%," he says. At recent growth rates in China, he added, "living standards don't double in a single human life span...they rise 100-fold, or 10,000%." That's good for the Chinese, good for the American worker whose employer sells to China, not so good for the American whose job can be done in China.

While economists argue whether technology, globalization, deregulation or changing social mores are most to blame for the widening gap between economic winners and losers, the public has no such doubt. It's far easier for an American worker to damn the Chinese for his falling wages than to damn the personal computer in his den. "In public perception," says Mr. Irwin, "we have widening inequality, a widening trade deficit and trade is a greater percentage of the economy. It's easy to say trade is part of the problem. So it's part of the solution."

The changing nature of trade plays a role, too. Technology makes it cheap and easy to hire workers in, say, India to do tasks once done in the U.S. and to ship the work back to the U.S. by fiber-optic cable or satellite, a phenomenon likely to grow in years to come, as Princeton University economist Alan Blinder points out loudly. This production of services at a distance makes it easier for owners of capital in the U.S. to reap the rewards of globalization even if many American workers do not.

The issue, in this light, isn't whether trade makes the world as a whole richer. It does. The issue is the distribution of those gains. If American workers sense they are at risk of being losers –– even if those fears are overstated or ignore the benefits they get from imports as consumers –– the political consensus for encouraging further globalization will evaporate.