NYT columnist Eduardo Porter seriously misrepresents the issues in the trade debate in his column today. First of all, he misrepresents recent trade deals by referring to them as “free trade” agreements.
While advocates of these trade pacts like to call them “free trade” agreements in the same way that President Reagan wanted to call the MX missile the “Peacekeeper,” that doesn’t make the assertion accurate. A major part of all the trade deals the United States has negotiated over the last two decades has been provisions that require stronger patent and copyright protection in our trading partners.
Patent and copyright protection is a form of protectionism; it is not free trade. In fact, patent and copyright protection are extremely inefficient forms of protectionism that lead to far higher prices and much greater economic distortions than the types of trade protection that typically concern policymakers.
While tariffs or quotas rarely raise the price of a protected product by more 20 or 30 percent, patent and copyright protection raise the price of the protected items by many thousand percent. In the case of prescription drugs, patent protection raises the price of drugs that would sell for $5-$10 a prescription in a free market to hundreds or even thousands of dollars per prescription. The total gap between patent protected drug prices that we pay and their free market price is in the neighborhood of $270 billion a year.
As economic theory predicts, this sort of interference in the market leads to rent-seeking behavior by drug companies that make the economic distortions even larger. In fact, the NYT has run numerous articles on efforts by drug companies to market drugs for inappropriate uses or to conceal evidence that their drugs are ineffective or even harmful. (Here‘s the NYT’s latest installment in its series on abuses caused by patent monopolies in prescription drugs. And yes, there are other ways to finance prescription drug research.) These are exactly the sort of abuses that economic theory predicts would result from this sort of government granted monopoly.
The article also mistakenly leaves readers with the impression that free trade would only put downward pressure on the wages of less-educated workers. In fact, this has been the case largely because the most highly educated workers, like doctors and lawyers, have managed to largely protect themselves from international competition.