On his blog, Paul Krugman discussed how “the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins.” Aside from the historical and intellectual issues with this statement, Krugman makes another rather anti-Progressive point (albeit he does so unintentionally): that wealth should be redistributed from the poor to the wealthy.
“Whoa whoa whoa, back that train up!” you might be saying. “How on Earth is Krugman making that argument? He is a noted proponent of redistribution from the wealthy to the poor!”
You’d be right to say that; he is such a proponent. But this is where his argument becomes contradictory.
If, indeed, the role of the government is to redistribute from the winners of trade to the loser of trade, then that necessarily means that gains must be transferred from the poor to the wealthy.
Who benefits from trade liberalization? It is, overwhelmingly, the poor. This is a point even Paul Krugman understands. For example, if a factory opens in Africa, the local population benefits hugely. There are few (if any) losers in that area (except, perhaps, a local monopoly). In the US, the poor benefit from the now lower-priced goods. So, in both areas, the poor are helped. Where the “losers” might be are the now-displaced factory workers and owners, who were relatively better off than those who have been helped by trade. If redistribution from the winners to losers is necessary, then it must come at the expense of the relatively poor. Tariffs and other taxes or sanctions against imports are, inherently, regressive. This means that the poor are now paying higher taxes (which they can ill-afford) to protect the relatively wealthier displaced workers (of course, this is not even including the severe poverty that the residents where the new factory is located face).
If, indeed, the case for free trade rests upon the necessity to redistribute (which, again, it doesn’t) then the best thing that could happen is for as free trade as possible given its already-inequality-reducing abilities. Actions taken to make it more “fair” only harm those most vulnerable.