Third: since 1997 or so the link between expanded imports and wage inequality has become real, as our imports now embody a much larger amount of factors competing with our own lesser-skilled than they used to. How large? I don’t think we know. Paul Krugman is now writing a paper for the Brookings Institution in which he essentially throws up his hands at the question. But there are two points worth noting: (a) the effects of trade on pre-tax wage inequality are much smaller than the effects over the past generation of changes in the tax system on after-tax income inequality; (b) the effects of trade on inequality of opportunity are much less than the effects of educational inequities on inequality of opportunity.
Fourth, to the extent that we in the United States begin thinking of trade restrictions as a way to fight inequality, we are setting ourselves up for extraordinary trouble late in this century–extraordinary damage to our long-run national security.
Now if the next progressive administration decides that in the total universe of tough political fights they want to take on, they’d rather have fights over withdrawal from Iraq, expanded access to health car, and curbing America’s carbon emissions than have a tough fight over further lowering of trade barriers that would strike me as an eminently sensible way to proceed. In retrospect, it seems a bit perverse of the Clinton administration to have gone forward with NAFTA before health care and without even getting their allies-on-NAFTA in the business world to support them on health care. That, however, is about priorities and sound coalition-management, a different thing from saying that the opponents of trade liberalization are correct on the merits.