DeLong Smackdown Watch: Dani Rodrik
Dani Rodrik clearly explains just what parts of the "trade lowers prices" arguments are erroneous:
Dani Rodrik's weblog: Brad DeLong, prices, and trade: The argument on prices is often presented as if it is an add-on to the income-side effects of trade, and one that can override otherwise important distributional consequences. "Yes, these workers might lose their jobs, but look how much the rest of us benefit on account of lower prices." See for example the post by Dan Drezner that started me off. My point was that the "but..." part of the argument is irrelevant or need not hold. In particular:
(a) In our workhorse model of trade (the HOS model), certain groups will lose out from trade, regardless of price movements.
(b) And in other models (such as those with some sector-specific factors), whether any particular group of workers gains from the price effects of trade depends on how their consumption basket relates to traded goods. If you are a worker who consumes a lot of the export good (my Argentine example), you will be worse off, regardless of the aggregate relationships discussed by Brad (i.e., even though exportables may have a smaller share in consumption than in production in aggregate).
I should add that because of these distributional effects, the median (i.e., typical) consumer can also end up worse off, to the extent that her income sources and budget shares differ from those of the average. So before you take too much comfort about all the cheap prices at Wal-Mart, these are some of the things you have to worry about...
