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What Do Undergrads Need To Know About Trade?

INSTRUCTIONS TO CANDIDATES
ANSWER ALL QUESTIONS

What Do Undergrads Need To Know About Trade?

BY PAUL R. KRUGMAN

Few of the undergraduates who take an introductory course in economics will go on to graduate study in the field, and indeed most will not even take any higher-level economics courses. So what they learn about economics will be what they get in that first course. It is now more important than ever before that their basic training include a solid grounding in the principles of interna- tional trade.

I could justify this assertion by pointing out that international trade is now more important to the U.S. economy than it used to be. But there is another reason, which I think is even more important: the increased perception among the general public that international trade is a vital subject. We live in a time in which Americans are obsessed with international competition, in which Lester Thurow's Head to Head is the non- fiction best-seller and Michael Crichton's Rising Sun tops the fiction list. The news media and the business literature are satu- rated with discussions of America's role in the world economy.

The problem is that most of what a stu- dent is likely to read or hear about interna- tional economics is nonsense. What I want to argue in this paper is that the most important thing to teach our undergrads about trade is how to detect that nonsense. That is, our primary mission should be to vaccinate the minds of our undergraduates against the misconceptions that are so pre- dominant in what passes for educated dis- cussion about international trade.

I. The Rhetoric of Pop Internationalism

As a starting point, I would like to quote a typical statement about international eco-

*Department of Economics, Massachusetts Institute of Technology, Cambridge, MA 02139.

23

nomics. (Please ignore the numbers for a moment.) Here it is: "We need a new eco- nomic paradigm, because today America is. part of a truly global economy (1). To main- tain its standard of living, America now has to learn to compete in an ever tougher world marketplace (2). That's why high productivity and product quality have be- come essential (3). We need to move the American economy into the high-value sec- tors (4) that will generate jobs (5) for the future. And the only way we can be compet- itive in the new global economy is if we forge a new partnership between govern- ment and business (6)."

OK, I confess: it's not a real quotation. I made it up as a sort of compendium of popular misconceptions about international trade. But it certainly sounds like the sort of thing one reads or hears all the time-it is very close in content and style to the still- influential manifesto by Ira Magaziner and Robert Reich (1982), or for that matter to the presentation made by Apple Computer's John Sculley at President-elect Clinton's Economic Conference last December. Peo- ple who say things like this believe them- selves to be smart, sophisticated, and for- ward-looking. They do not know that they are repeating a set of misleading clichés that I will dub "pop internationalism."

It is fairly easy to understand why pop internationalism has so much popular ap- peal. In effect, it portrays America as being like a corporation that used to have a lot of monopoly power, and could therefore earn comfortable profits in spite of sloppy busi- ness practices, but is now facing an on- slaught from new competitors. A lot of com- panies are in that position these days (though the new competitors are not neces- sarily foreign), and so the image rings true.

 

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