Paul Krugman: Divided Over Trade

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Nothing divides Democrats like international trade policy. That became clear last week, when the announcement of a deal on trade between Democratic leaders and the Bush administration caused many party activists to accuse the leadership of selling out.

The furor subsided a bit as details about the deal emerged: the Democrats got significant concessions from the Bushies, while effectively giving a go-ahead to only two minor free trade agreements (Peru and Panama). But the Democrats remain sharply divided between those who believe that globalization is driving down the wages of many U.S. workers, and those who believe that making and honoring international trade agreements is an essential part of governing responsibly.

What makes this divide so agonizing is that both sides are right.

Fears that low-wage competition is driving down U.S. wages have a real basis in both theory and fact. When we import labor-intensive manufactured goods from the third world instead of making them here, the result is reduced demand for less-educated American workers, which leads in turn to lower wages for these workers. And no, cheap consumer goods at Wal-Mart aren’t adequate compensation.

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