Ramesh Ponnuru sent me a WSJ article by Greg Ip:
If workers lose their jobs to imports and central banks can’t bolster domestic spending enough to re-employ them, a country may be worse off, and keeping those imports out can make it better off.
Mr. Summers, a former Treasury secretary, is no protectionist and no fan of Mr. Trump, whose election, he warns, could lead to recession in the U.S. and financial crisis abroad. But he does worry that chronically weak demand could make protectionism both respectable and irresistible.
Others, such as New York Times columnist Paul Krugman and Michael Pettis at Peking University have already noted how in a world with too little demand, one country’s trade surplus inflicts unemployment on the country with a deficit.
Even if Summers, Krugman and Pettis are correct (and I think they are wrong) the argument does not apply to the world we live in today. Thus Greg Ip is mistaken when he says “but those conditions may now be present.” They are not.
Let’s start with the US. The US is not at the zero bound, and the Fed is expected to raise rates in a few days because they think that failing to do so would result in excessive AD. So if protectionism somehow miraculously boosted AD in the US, the Fed would simply raise rates even faster to prevent any stimulative effect on AD.
Now it’s true that the Eurozone and Japan are both at the zero bound. But both economies have very large current account surpluses, so obviously trade deficits are not depressing output in those two regions. Even very depressed areas such as Italy run surpluses.
In fact, unemployment has almost nothing to do with trade “imbalances” (a term I hate).