Dumb and Dumber: Why Clinton and Trump Should Take Econ 101

Adam Bryla, Baruch College:

“Today… there is much support for tariffs–euphemistically labeled “protectionist,” a good label for a bad cause.”

American economist and Nobel Prize Laureate, Milton Friedman said this in 1996 but fast-forward 20 years and it still applies. Over the past century, the world has moved ever closer to freer trade but this year’s presidential candidates are trying to stop this progress dead in its tracks.

Current Democrat Presidential candidate Hillary Clinton has shown increasing opposition to free trade. Her once support of trade deals like her husband’s North American Free Trade Agreement (NAFTA) and President Obama’s Trans-Pacific Partnership (TPP) has slowly diminished throughout the years. During the September 26th presidential debate she has even denied calling TPP a “gold standard.” As we have gotten closer to the election, Clinton has voiced doubts about free trade similar to those of socialists like Senator Sanders and for that matter even paleo-conservatives like her opponent, Donald Trump.

Donald Trump has taken an even more critical position against free trade. If Trump is elected, he would be the first fully protectionist president the United States has had since the Great Depression (Herbert Hoover). Trump has expressed fervent opposition to TPP, NAFTA, and other trade deals, which is shocking, especially for modern day conservatives who have been champions of free trade for decades.

Anyone who’s ever taken an introductory course in economics knows that, on average, everyone benefits from trade. Even if a country is better at producing all goods, it still benefits by concentrating on what it does “most best” and trading the rest off for goods that other countries do “most best”. The famous economist, David Ricardo, called this the theory of comparative advantage. This leads to a more efficient allocation of resources at home and around the world. Ever since Adam Smith, economists from all parts of the ideological spectrum have unanimously agree that free trade is in the best interest of trading countries.

Contrary to the rhetoric of the presidential race, free trade has not been a horrible failure. Instead, it has been one of the best things to come out of the 20th century. It has brought hundreds of millions of people out of poverty, all while enriching the U.S. and its citizens. According to a study by economists at UCLA and Columbia University, the average American household has a 29% increase in purchasing power thanks to the access to cheap goods, made more efficiently overseas. Poor households have an even larger 62% increase in purchasing power because they spend disproportionately on goods that are traded more frequently. Complement those increases with low cost inputs for consumer products that increase productivity, the eventual benefits of a richer Chinese market for U.S. exporters, and the rush to innovation in the U.S. from global competition, and the argument for free trade is overwhelming.

So why is Clinton, and more importantly Trump, against free trade?

The answer is political. Free trade, nowadays, has a negative connotation to it. It’s much easier to blame the bad economy on foreigners who don’t vote then it is on American citizens. All Trump is doing, when he says he will place tariffs to bring back American jobs, is capitalizing and expanding on uneducated, anti-free trade sentiment. Trump’s and Clinton’s tirades on trade are more reasons to oppose their candidacies than to be in favor of them.

Both of them have criticized the very ideas of TPP, NAFTA, and other trade deals on the grounds that they cost American jobs, but this perspective involves misconstruing the idea of gains from trade. When products are not as expensive, our dollar bills stretch further, our standard of living increase, we have more money to buy things, or invest in new technologies, and on average everyone becomes better off. Trade deals have also been a good way to improve our standing in the world by deepening relations with allies.

That being said, free trade does cause unemployment in some areas. It always has since the beginning of the industrial revolution… But saying that on its own creates a fallacy that can be manipulated very easily. International trade does not benefit every sector in every nation. Sectors in the international marketplace that do not enjoy a comparative advantage shrink, and unemployment in those sectors rises. But the economic impact of a small rise in unemployment due to labor force adjustments is undoubtedly far less onerous than the impact of protectionist laws.

The reason that the idea that trade deals are harmful to American industries spreads is because free trade policies might affect one particular industry or group of workers and it’s much easier for this group to coalesce and lobby for laws that help them out. On the other hand, the vast majority of families that do indirectly benefit, are all better off marginally so they have much less of an incentive to say anything. In the long run, protecting an inefficient method of production helps no one and actually leads to more harm than good. As the late William F. Buckley Jr. once said “If we had decided not to trade in the 1940s every woman today between the age of 20 and 60 would have to be a telephone operator to make possible our transactions.”

The case for international trade is extremely overwhelming, but that doesn’t mean the losers can’t be helped. More could be done in America to help workers, who lose jobs, retrain and transition to new jobs. This method creates a more dynamic economy and is a much better response than the protectionism that Trump is peddling. It allows for innovation to continue and old jobs to be replaced with new, more productive and efficient ones. Unfortunately, neither candidate is addressing this side of the story.

As the candidates pander towards protectionism, they offer a plan destined for failure. History shows, and every economist on the planet agrees, that attempts to wall off American industries from international competition would backfire. There would be job losses in the U.S. and elsewhere, not job gains; American firms would export fewer goods and services, and American citizens would pay more for their basic needs, which is already tough to do for most people right now. Other countries would follow suit and give in to protectionist impulses too. A reversal to policies of protectionism would be especially tragic because the United States has provided vital leadership on international trade for almost eight decades now.

In the end, protectionism is a downward economic spiral with a tragic and ironic result of even more populist resentment toward Washington.

 

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