To a lot of people the term “free trade” is a word used by economists and other academics in their abstract theories and arguments that are only loosely related to the issues of the real world. After all, Adam Smith died more than two-hundred years ago, so why should anyone take his advice on the economy seriously?
The reason why is actually quite simple: because free trade works. Free trade works for the rich, it works for the poor, it works for the business owners, and it works for the laborers. Whenever nations are allowed to export and import goods without restrictions like tariffs or quotas, everyone is the better for it.
This notion that free trade is a positive economic force is something that lawmakers in the United States have figured out and implemented through the creation of various trade agreements with countries all over the world. Currently, the U.S. has twenty such agreements in place and is in the process of negotiating more of them.
However, even though these agreements have allowed Americans to consume better products at lower prices, they are now under attack by today’s politicians.
One of the most outspoken opponents of free trade is the Republican Party’s presumptive nominee Donald Trump who recently decided to come out against NAFTA by saying that “It’s a disaster … We will either renegotiate it, or we will break it. Because, you know, every agreement has an end.” Furthermore, he has also been critical of the United States relationship with China saying that “we have been too afraid to protect and advance American interests and to challenge China to live up to its obligations.”
Trump often makes the argument in his interviews and speeches that countries like Mexico and China are “beating us on trade.” This, of course, sounds like nonsense to any economist who understand the principle of comparative advantage, which clearly demonstrates that there are no winners or losers when it comes to the free exchange of goods and services.
Unfortunately, being against free trade is not a stance that is exclusive to the one side of the aisle. Bernie Sanders who was campaigning for the Democratic Nomination made the following statements in an interview with Chuck Todd “I voted against NAFTA, CAFTA, PNTR with China. I think they have been a disaster for the American worker.” Sound Familiar? It should because it mirrors almost exactly what his rival on in the Republican Party has said.
Now, a few months ago when Bernie and Trump had yet to penetrate into mainstream politics there was really nothing to worry about. Their ignorance on this key economic issue was isolated, and it seemed unlikely that more serious candidates would pick up their radical views. However, large sections of both parties have begun to embrace the flawed notion of protectionism.
The Pew Research Center has reported that, on the Republican side, support for free trade dropped from fifty-nine percent to thirty-nine percent since 2009. This undoubtedly has something to do with Donald Trump, as well as his conversion of other prominent Republicans to the protectionist side like Newt Gingrich who was a supporter of NAFTA when it first came into being.
Democrats on the other hand have swayed a bit less on the issue; the Pew Research Center reports that fifty-nine percent still believe in the necessity of free trade. However, the party elites do not seem to be completely on board with their base. Some of the most influential democrats like Senator Sanders and Elizabeth Warren have jumped onto this unfortunate bandwagon that promotes such things as tariffs and restrictions on imports. Even Hillary Clinton has been flip-flopping on this issue, no doubt in order to secure the vote of Bernie Supporters. Recently she came out against the Trans Pacific Partnership which she had originally been in favor of when she was Secretary of State.
The argument that all of these politicians are making is that free trade allows other countries to steal the jobs of hard-working Americans and it decreases their wages in the process. They argue that the government must somehow protect workers by enacting restrictions on trade and making it more difficult for companies to move their manufacturing and services departments overseas.
This is all fundamentally wrong. All protectionism is, is a tax that is paid not by foreign governments or businesses but by the American people. If the United States is concerned with their steel workers losing their jobs and, as a result, they make it more difficult for foreign steel to be imported the result will never be optimal. Yes, the steel workers might be able to keep their jobs but automobile workers and construction workers will not. This is because the companies that employ these workers will account for an increase in the cost of the materials they use for production by laying people off. In addition, those car and construction companies will have to raise their prices, thereby hurting everyone who buys their goods and services.
In essence, protectionism keeps a few business alive at the expense of all of the others. You do not need to be an economist to recognize that this is a bad idea.
Yes, it is a tragedy whenever someone loses their job, but that is why it is essential for individuals to have sufficient human capital so that they can find employment elsewhere. Long gone are the days when high school graduates could find a job at a factory and live off of that for their entire lives, and that is a good thing. The fact that such jobs no longer exist means that U.S. workers can focus on sectors of the economy that are more advanced and innovative. This is what leads to real progress.
By suggesting that we need to protect workers from some foreign threat, our politicians are not helping anyone. They are lying to the people and filling them with false hope that they will bring back a time in the United States that no longer exists and never will.
This backlash that has come out against free trade is really a symptom of a much larger problem within American politics: populism. I refuse to believe that Donald Trump, who graduate from the best business school in the nation (Wharton), actually believes in what he is saying. He is clearly pandering to a base of supporters who are dissatisfied by their position on the economic hierarchy.
The same can be said for Bernie Sanders and Hillary Clinton; they have been in this game long enough to know better. We need politicians with the morals to tell people the hard truths of life that not all jobs can be protected from the destructive elements of the economy. Americans do not deserve lies they deserve the facts, facts which have been promulgated by economists for centuries.
Library of Economics and Liberty –
CBS News –
International Trade Administration –
Donald Trump Campaign –
On the Issues –
Library of Economics and Liberty –
Los Angeles Times –
One thought on “Land of the Free (Trade)?”
I’m not sure that I agree with your take on Free Trade being all good. TPP is all about Free Trade but it circumvents democracy to give profits to corporations. Sir Goldsmith, a major capitalist, warned, very succinctly, years ago about the dangers of so-called free trade here: https://underground.net/sir-james-goldsmith-defender-of-the-working-class/
Our government is designed to protect our citizens and our economies. Why is it right to allow corporations to hire labor in dictatorship countries that pay their citizens slave wages, just because it allows corporations to save money on wages? The result has been that wages have gone nowhere in the last 40 years in the US and inequality has exploded.
Just my 2-cents 🙂