The Free Trade Magic Act

In a recent paper, three economists — Drusilla Brown, Alan Deardoff, and Robert Stern — attempt to calculate the benefits of trade liberalization. They estimate that complete elimination of all trade barriers in the world would add $1.9 trillion (about 5%) to the world's gross economic product by 2005 (Brown, Deardoff, and Stern 2001). Brown-Deardoff-Stern's numbers look convincing, leaving the casual reader with the sense that free trade benefits are pretty much in the bank — ready to be claimed if only we would adopt the correct trade policies. But a closer look reveals that the underlying assumptions are unreliable. In fact, if one compares the standard criticisms of free trade to the assumptions made by Brown-Deardoff-Stern when measuring its benefits, an odd symmetry appears: the problems identified by critics are identical to the factors discounted in the Brown-Deardoff-Stern model. In other words, Brown-Deardoff-Stern never rebut a single criticism of global liberalization; instead, they simply assume that each criticism is false or irrelevant to begin with. Thus, as a contribution to the debate on trade policy, the Brown-Deardoff-Stern estimate is useless. In spite of this, supporters of the Bush Administration's fast-track proposal (which would require Congress to vote trade agreements up or down without altering them) cite the Brown-Deardoff-Stern estimate to justify the rapid trade liberalization that fast track would promote. Brown-Deardoff-Stern's buoyant predictions for free trade are like the rabbit pulled out of a hat: the trick works only because the rabbit was put into the hat to begin with. What follows is a visit backstage to see how the trick is put together step by step.