Among the more disturbing political trends in recent months has been the shift against free trade in both major parties, led by populist candidates fanning old myths about trade costing jobs and fostering unfair advantages to other countries.
The truth about trade, however, goes beyond popular slogans. It has been proven though decades of experience. Free trade raises incomes, creates jobs, fosters innovation and reduces the price of goods we buy. And despite the way politicians rail on other nations for manipulating their currency or for allowing incomes so low U.S. companies can’t compete, those are burdens borne by foreign countries, not the United States. They represent costs that impede prosperity abroad, while ensuring access to cheaper products here.
In addition, trade deficits are not the same as debt. They are good for the U.S. economy in the sense that they signal the confidence global investors have in local markets.
For many years now, the Republican Party has embraced free trade as a core platform. This year, that changed. The platform adopted in Cleveland this month referred to the Trans Pacific Partnership as harmful and unfair. Democrats, pushed to the left by the failed candidacy of Bernie Sanders, seem similarly inclined, despite Hillary Clinton’s earlier support for free trade and despite President Obama’s ardent support for the Trans Pacific Partnership.
The good news is a recent NBC News/Wall Street Journal poll shows these positions are out of touch with the general population. It found 55 percent of Americans agreeing with the notion that free trade is good in a global economy. A higher share of Democrats agreed than Republicans, but a majority agreed across the political spectrum, including among independents.
Critics commonly equate free trade with the loss of jobs in the United States. It is true that certain sectors of the economy find themselves unable to compete with cheaper prices in other countries. As with all forms of competition, free trade forces companies to become more efficient or to pivot toward more profitable ventures. Trade is the main reason why agriculture has shrunk dramatically as a percentage of the U.S. economy since the 19th century, while new jobs have been created in other economic sectors.
Global trade allows businesses in the United States to focus on areas where they have a competitive advantage, generating wealth through innovation and through lucrative new markets abroad.
As Mercatus Center senior research fellow Donald J. Boudreaux explained in a recent paper on the subject, “Protectionism … attempts to protect jobs that the market will not sustain; it does so at the expense of more innovative industries.”
Markets constantly change and shift. As Boudreaux noted, smartphone apps have “displaced a staggering variety of products, including radios, cameras, alarm clocks, calculators, compact dics, DVDs, carpenters’ levels, tape-measures, tape recorders, blood-pressure monitors, cardiographs, flashlights and file cabinets.” This doesn’t mean smartphones are bad for the economy.
If the next president and Congress insist on imposing high tariffs to “protect” American jobs, other nations may be expected to react in kind. The result would be a contracting economy, smaller markets for U.S. products, higher prices for goods and greater unemployment.
Add to that a reduction in global stability as resentful trading partners also begin to suffer. Nations are less likely to war with the partners with whom they do business.
The current populist move away from free trade in the two major political parties could, if not stemmed, have serious repercussions that take years to undo.