A Story of When the "Obvious" Is No Longer Obvious

October 7, 2019

Recently, not a day goes by without seeing news about the US-China trade war. There is a lot of noise about both countries competing in a win-or-lose race. President Trump states that many American workers are losing their jobs because of the trade deficit with China. Many people likely accept these arguments as "obvious" without any sense of unease. I, too, would have accepted them naturally if I had not had the following two experiences during my student days.

The first was my experience at the end of my second year in the Faculty of Economics, when I took the exam to enter the seminar of my mentor, Professor Michihiro Ohyama. The exam consisted of two subjects, English and economics, and the English portion required reading and summarizing a passage from Paul Krugman's book (Pop Internationalism, The MIT Press, 1996). Politicians often argue as if countries are competing to win or lose in the international market like corporations, but that is a mistake. While companies can go bankrupt, countries do not. Trade is not a win-lose game; it is something that brings benefits to both countries. This can be easily demonstrated with basic trade theory.

The second was during the second year of my Doctoral Programs in the Faculty of Economics at the University of Minnesota in the US, when I gave a group presentation on the theme of trade and wage inequality in a class taught by Professor Timothy Kehoe, who would later become my supervisor. The widening wage gap between skilled and unskilled workers seen in many developed and developing countries cannot be explained by trade. According to standard trade theory, after trade, the wage gap widens in developed countries but narrows in developing countries. Citing this divergence between reality and theory as one reason, many economists attribute the main cause of the widening wage gap not to trade, but to technological progress through the introduction of high-tech computers. They argue that domestic workers are not competing with foreign workers.

From these two experiences, I learned that arguments often taken as "obvious"—such as the idea that countries compete in international markets like corporations, or that many domestic workers lose their jobs because of trade—are actually not obvious at all from the perspective of basic economics.

As I continue my research in economics, I look forward to again having experiences that make me realize that things I thought were "obvious" were not, and I hope to provide opportunities for students taking my classes or seminars to have similar experiences.