WASHINGTON, August 13, 2016 – Donald Trump and Bernie Sanders seem to agree that free trade is responsible for our most serious economic problems. Now, in an effort to woo Sanders supporters, Hillary Clinton has reversed her position on trade agreements, expressing agreement with the Trump-Sanders position.
The problem with this analysis is that it is largely mistaken. And in the case of Donald Trump, it rejects the traditional Republican and conservative commitment to free trade.
“Ever since Adam Smith there has been virtual unanimity among economists, whatever their ideological positions on other issues, that international free trade is in the best interests of trading countries and the world…Few measures that we could take would do more to promote the cause of freedom at home and abroad than complete free trade.”
Donald Trump promises to shred the North American Free Trade Agreement (NAFTA) on the grounds that Mexico is stealing American jobs. In fact, argues Mary Anastasia O’Grady in The Wall Street Journal,
“It is technology, not free trade, that is behind the shrinking number of U.S. manufacturing jobs… Mexico is…the U.S.’s third-largest trading partner and second largest export market… Americans from every walk of life are beneficiaries of U.S. global trade. Indiana, the home of GOP vice-presidential candidate Gov. Mike Pence, exported some $4.8 billion of goods to Mexico in 2015, making it the state’s second largest export market. That included $1.5 billion in transportation equipment, $1.4 billion in machinery and $88 million in corn-fructose products. More than 100,000 Hoosier jobs depend on trade with Mexico.”
Exports to Mexico were over $1 billion in 31 states in 2015. It is the biggest export market for California, Arizona, New Mexico and Texas. It ranks second for 25 other states.
In O’Grady’s view,
“Perhaps the biggest lie that Mr. Trump peddles is that higher tariffs can restore lost U.S. manufacturing jobs. They won’t, and to suggest otherwise is a cruel hoax.”
As with any problem we face, it must be diagnosed correctly if it is to be dealt with properly. In an article in Foreign Affairs titled “The Truth About Trade,” Dartmouth economist Douglas Irwin points out that while technology has “enabled vast productivity and efficiency improvements,” it has “also made many blue-collar jobs obsolete.”
Prof. Irwin cites a study by the Center for Business and Economic Research at Ball State University which found that “…productivity growth accounted for more than 85 per cent of the job loss in manufacturing between 2000 and 2010, a period when employment in that sector fell by 5.6 million.”
None of this is to say that trade agreements do not include both winners and losers. Due to already existing trade agreements, consumers tend to benefit from cheaper clothes, electronics and other goods, while companies like Apple can sell more of their products overseas.
Indeed, free trade has hurt some factories and workers because they have not been able to compete with foreign businesses that have lower-cost labor as well as subsidies and other benefits from their governments.
Still, imports are not the most important cause of the loss of manufacturing jobs, according to economists. Automation, they argue, has had a much bigger impact. They point out that other industrialized countries like Germany and Japan have also lost manufacturing jobs, even though they, unlike the U.S., export more than they import. Between 1990 and 2014, the number of manufacturing jobs fell by 34 percent in Japan, 31 percent in the U.S., and 24 percent in Germany, according to the Congressional Research Service.
Mr. Trump’s proposals for increasing tariffs on Chinese goods or his threat to pull the U.S. out of the World Trade Organization are unlikely to “bring back our jobs,” as he claims and as Bernie Sanders claimed during his primary campaign.
On the other hand, where Hillary Clinton stands remains somewhat confusing.
Conservatives who believe in free markets and free trade are particularly concerned about Donald Trump’s embrace of protectionism. Jon Utley, the publisher of The American Conservative, notes that,
“With all the threats now to trade and world prosperity we should understand better the reasons for our deficits and lost manufacturing jobs. We should refine aid, re-training and tax policies to help those who lose jobs, not risk dragging down America’s prosperous exporters and their workers nor wreck world trade as protectionism caused to happen in the 1930s…. Americans see a lot of imports at Walmart—they don’t see our massive exports of machinery, jet planes, software, agriculture ($160 billion annually)… Natural gas exports are skyrocketing. Just to Mexico they have quadrupled in the last 5 years… Foreigners have to sell us their stuff to be able to buy ours. Free trade is often blamed for the decline of blue collar jobs in America. Actually, robotics and information technology are the major causes.”
The Republican Party has traditionally rejected the anti-trade policies Donald Trump has embraced, policies usually associated with labor unions and those on the left, such as Bernie Sanders. There is a danger that such policies, if implemented, could drive us into a serious recession.
Writing in Foreign Policy, Prof. Stephen Walt of Harvard declares that,
“Trump’s views on international economics reflect a protectionist outlook that was discredited a couple of centuries ago. Tearing up Nafta or leaving the World Trade Organization would not restore American manufacturing or make the country ‘great’ again; it would instead be a body blow to the U.S. and the world economy and could quite possibly trigger another global recession. Trump simply doesn’t seem to understand that trade is not a zero-sum game where one state ‘wins’ and the rest ‘lose’… Furthermore, Trump’s claim that he can single-handedly negotiate ‘great’ deals to replace the existing global trading system just tells you that he doesn’t know how such deals are actually negotiated or how that order works.”
Where Hillary Clinton stands on all of this is less than clear. She now says she opposes the Trans-Pacific Partnership (TPP), after championing the idea of such a pact when she was Secretary of State. She reversed herself to put herself in alignment with Bernie Sanders during the primaries. By doing so, she put herself at odds with both President Obama and her husband. Her position remains suspect to those on the left, so much so that Virginia Governor Terry McAuliffe suggested during the Democratic convention that she would reverse herself and find a way to support the TPP after the election.
Ironically, at this time, Clinton and Trump now seem to agree in their opposition to free trade.
Conservative economists have been critical of Donald Trump’s anti-trade policies. Prof. Peter Morici of the University of Maryland writes that,
“Getting tough on trade with Mexico and China is easy to talk about but much harder to do. High tariffs will raise prices for everyday items at Target and Walmart and Mr. Trump has to explain how enduring those would put Americans back to work in now shuttered factories, raise incomes all around and make us all still better off. More fundamentally, he needs to articulate what a better deal for Americans would look like when he renegotiates NAFTA and our WTO relationship with China and Mexico.”
In our strange political environment, both Republicans and Democrats are opposing trade agreements they once both embraced. Former Massachusetts Republican Governor William Weld, the Libertarian Party’s vice presidential candidate, says both Republicans and Democrats are wrong on free trade:
“Free trade, over the years, has served the U.S. very well. We are the most productive country in the world per worker, and that means that where there’s (flat) free trade, we’re always going to get more high-wage jobs. Trump is saying, ‘let’s throw free trade in the wastebasket, let’s have a closed economy.’ Somebody should lend this guy a set of history books. That was tried in the ’20s and it led to the Great Depression.”
For the candidates of both parties to embrace opposition to free trade—even though Hillary Clinton has embraced this policy for cynical political reasons, while Donald Trump actually appears to believe what he saying—means both parties have rejected the laws of economics for something far different.
Those who turn their backs on a real understanding of how our economy works are hardly the ones to keep us on a steady course. Yet these are the candidates we have.