August 5, 2013 8:51AM

Free Trade in Medical Services? Bring It On!

The NY Times has a long article about the U.S. medical system, in which it notes how much cheaper things are abroad. I’ll leave it to my colleague Michael Cannon and others to comment on the accuracy of the piece, if they see anything worth commenting on. I just want to weigh in on a trade policy aspect. Economist Dean Baker responded to the article with a post that starts off as follows:

The NYT has an article today on the enormous savings available to people who had major surgeries performed in Europe rather than the United States. The piece reports that the cost of hip replacement or knee replacement surgery in the United States are more than five times higher than they are in comparable quality facilities in Europe. (The gap would be even larger with facilities in Thailand and India.)

This shows the enormous potential gains from increased medical trade. In effect, our hospitals, doctors, and medical equipment makers benefit from tariffs on the order of 500 percent or more. If the Obama administration really is interesting in promoting growth through trade it would be difficult to imagine a sector with larger potential gains than trade in medical care. The agreements would focus on setting clear liability rules, accreditation systems, and removing obstacles for insurers and government programs that prevent them taking advantage of lower cost medical services in other countries.

I think he is absolutely right that there are enormous gains to be had here. I’m not sure about the recommendations he makes in the last sentence — I would want to talk to a health care expert about specific barriers before endorsing his proposals. But I have no doubt that making it easier to trade medical services across borders would be of great benefit to consumers. If there are barriers getting in the way of trade, let’s get them out of the way.

But here’s where things get interesting. Baker seems to think he has caught free trade advocates in some hypocrisy. The post is entitled “Will Medical Trade Be Included in the EU Trade Deal and the TPP? If Not, Why Not?,” and he says:

If the trade deals do not include major openings on medical trade then it would be a clear example of why these deals are in fact about selective protectionism rather than free trade. Past trade deals have been quite explicitly focused on putting U.S. manufacturing workers in direct competition with the low paid manufacturing workers in developing countries.

Anyone who believes in free trade would want U.S. doctors and other professionals subjected to the same sort of competition. Otherwise, they really only want to use trade to lower the wages of less educated workers to benefit the the wealthy. (Low wages means cheap help.) It is dishonest to call that policy “free trade.” 

He then tweeted: “For some reason “free traders” don’t understand trade in medical services: Gains from eliminating protections enormous”.

Thus, his suggestion seems to be that there are some free traders out there who are arguing for free trade only in the manufacturing sector, not in professional service sectors, and as a result the two big trade talks going on right now might exclude these services.

Let me respond by noting that I have never met any free traders who take the view that professional services, or any other sectors (except perhaps defense), should be excluded. Of course, if they did, they wouldn’t really be free traders. Free trade doesn’t make a distinction between sectors. So, to Dean Baker, let me just say that I, a confessed free trader, whole‐​heartedly endorse the idea of free trade in medical services! And I’m pretty sure all other free traders feel the same way.

That’s not to say there aren’t people (i.e., special interest groups) out there who want protection for the medical service sector, just like there are people who want protection for the manufacturing sector. No doubt U.S. doctors would love to impose a 25% tariff on foreign medical services, just like the tariff we impose on imports of SUVs. But that’s just special interests doing what they always do, in all policy areas. It’s our job to fight their efforts, and hopefully Baker will join in. Baker mentions the Europe and Pacific trade talks underway right now. With some good arguments and a bit of luck, those talks will go a long way towards getting rid of any protectionism in these and other sectors.