Don't Trust Trump on Trade
What you need to know about the Trans-Pacific Partnership.
In a weird blast from the 1930s, the presidential campaign trail this year has become a hotbed of anti-free trade sentiment, with candidates on both sides of the aisle promising to renegotiate or even renege on agreements with key U.S. trading partners like Mexico and Canada.
In an August speech, GOP nominee Donald Trump went after his Democratic opponent by saying that Hillary Clinton "has supported the trade deals stripping [Detroit], and this country, of its jobs and wealth. She supported Bill Clinton's [North American Free Trade Agreement], she supported China's entrance into the World Trade Organization, she supported the job-killing trade deal with South Korea, and she supports the Trans-Pacific Partnership [TPP]."
Trump hates the TPP. Speaking in June at a campaign rally in St. Clairsville, Ohio, he told the crowd that the not-yet-ratified trade deal "is another disaster done and pushed by special interests who want to rape our country, just a continuing rape of our country."
The former reality TV star claims he isn't "anti-trade." In Detroit he admitted that "trade has big benefits, and I am in favor of trade. But I want great trade deals for our country that create more jobs and higher wages for American workers. Isolation is not an option, only great and well-crafted trade deals are."
There's no doubt that America's trade agreements, including the TPP, could be better. In an ideal world, the U.S. would adopt one and only one such document, which would read: "Americans are allowed to buy whatever they want from wherever they want without any restrictions, quotas, or tariffs, and the U.S. government will not subsidize American exporters in any way, shape, or form."
Compare and contrast that with the TPP, an agreement that includes 5,500 pages of explicit rules and exemptions and reeks of pro-export mercantilism. In a new book, Blueprint for America, the Hoover Institution economist John H. Cochrane helpfully paraphrased the deal: "We will let your politically connected exporters enjoy some rents of our protected markets," he wrote, "and in return you will let some of our politically connected exporters enjoy some rents in your protected markets." That's more trade, but it's hardly free trade.
Making matters worse, the U.S. likes to use trade agreements to forcibly export some of our worst labor, environmental, and intellectual property laws into foreign countries. For instance, the Mercatus Center's Eli Dourado notes, "TPP requires member countries to adopt some of the strictest elements of American intellectual property policy—copyright terms that extend to life of the author plus 70 years, prohibitions on circumventing digital rights management systems, and longer exclusivity for biologics."
But even if these proposals are less than ideal, they at least make trade easier. A new study by experts at the Cato Institute shows that while the TPP has protectionism baked in, 15 of 22 relevant chapters are "net liberalizing."
The sweeping agreement involving 11 countries is meant to keep rent seekers—in this case, companies looking for protection from the need to compete for customers—at bay. As the Mercatus Center's Dan Griswold has written, "TPP would eliminate 18,000 tariffs now imposed on U.S. exports to other TPP countries. Nearly 90 percent of those duties would go to zero upon enactment, and nearly all would be eliminated within 16 years." It also prohibits imposing customs duties on electronic transmissions. The Cato analysts conclude that "not everything in a free trade agreement is going to be to the liking of free traders," but on balance they think the deal will make us more economically free.
Flawed though it may be, this and similar agreements are good for the country overall. There is simply no debate over whether it benefits American exporters to have more access to foreign markets—it does. Better yet, more open international markets allow consumers to import better and/or cheaper goods, and producers to import better and/or cheaper raw materials.
That's right: Imports are the real value-add from freer trade. Even Paul Krugman admits as much. In a 1993 paper titled "What Do Undergrads Need to Know About Trade?" the left-leaning economist wrote that "imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import things it wants….The need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment."
Eliminating tariffs and quotas lowers domestic prices while inducing manufacturers to innovate so they can compete on a global stage. A true free trade agenda should be the cornerstone of any economic platform, but this is why it's particularly crucial if the goal is to address the hardship of lower-income Americans.
Unfortunately, Trump, like many before him, fails to see the beauty of low-cost, high-quality imports. According to the candidate, cheap goods destroy American jobs. This is why he wants to impose high tariffs on foreign products, forcing domestic consumers to "buy American" even if prices are substantially more.
But the logic that fewer imports will keep Americans employed is false. If there is a single issue where economists of all political orientations are in agreement, it is that international trade doesn't destroy jobs on net. Freer trade does rearrange jobs from countries where industries are relatively inefficient to countries where they get a better bang for the buyer's buck. But this process makes workers more productive and increases wages as a result. As Krugman put it, "trade policy should be debated in terms of its impact on efficiency, not in terms of phony numbers about jobs created or lost."
Hoover's Cochrane adds that if you follow the money, you can see every dollar Americans spend on imports coming back to the U.S. "When a Chinese company sells a product in America," he says, "we send money to China. The Chinese do not sit on the money. They use a lot of it to quickly turn around and buy buy American" stuff. And even if they don't buy from us, the countries they do buy from often turn around and use their new money to purchase American goods, assets, or government debt.
In any case, protecting exporters is no reason to make life more difficult for consumers. "The United States has some 135,000 workers employed in the apparel industry, but there are more than 45 million Americans who live below the poverty line, stretching every dollar they have," the Dartmouth economist Douglas Irwin recently noted in Foreign Affairs. "Can one really justify increasing the price of clothing for 45 million low-income Americans (and everyone else as well) in an effort to save the jobs of just some of the 135,000 low-wage workers in the apparel industry?"
Trump's irrational hysteria over China and other countries subsidizing their exports reveals his prioritization of U.S. exporters over average Americans. He claims he wants to "level the playing field" against foreign competition using government handouts (for our guys) and high tariffs (for theirs). In fact, countries that import goods made artificially cheap by some other government's subsidies benefit far more than the country practicing the protectionism. To state that more clearly: U.S. consumers get cheap goods at the expense of foreign taxpayers. That's the closest thing to a free lunch in economics as you'll ever find.
Just as there's no reason to make the perfect the enemy of the good when it comes enacting to trade agreements, there's also no need to give in to overblown fears about the dangers of trade.