Free Trade

Next Steps in the Fight for Free Trade

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Support for protectionism and its ugly sister, "fair trade," is sweeping the globe yet again. President Donald Trump's actions in the White House have made it painfully obvious that, despite a strong consensus in favor of trade among academic economists, efforts to build support among the general public have largely been unsuccessful. There remains a profound misunderstanding about the benefits of a free flow of goods and the conditions under which these benefits materialize.

First, let's tackle the mistaken view that international trade is an arena of "win or lose" competition between nations. Explaining this mistake is the central objective of economist Paul Krugman's excellent 1996 book, Pop Internationalism. In the introduction, he describes being at an event in Little Rock, Arkansas, at which then–Apple CEO John Sculley described "a world in which nations, like corporations, are engaged in fierce competition for global markets." The description was met with "obvious approval from the audience, including Bill Clinton."

Sadly, as Krugman explains, the angst over foreign competition is only more acute when paired with geographic disparities in wages: People worry about the pool of workers in poorer countries who are willing to do jobs for much less pay. However, the idea that fast-developing low-wage countries are a threat to developed nations is "questionable in theory and flatly rejected by the data," Krugman writes. The truth is that no nation with which we trade—be that nation rich, poor, growing, or stagnant—is an economic threat to us. The opposite is true, in fact: Trade increases our prosperity. This happy fact also holds for our trade with China, whose growth we should welcome, as it will also enrich us.

Second, too few people understand that the economic reasons to support free trade—that is, getting rid of all trade barriers, including tariffs—do not depend on what other countries do. The case for free trade is a case for unilateral disarmament. Period. No buts. No conditions. There's no requirement for reciprocity, because the burdens of protectionist policies always fall first and foremost on the people in the country practicing protectionism. Consumers, not producers or exporters, bear the cost of the extra tax. It would be great for all governments to pursue the same policy of free trade, but it makes no sense to punish Americans with tariffs in order to convince foreign governments to stop punishing their citizens with tariffs.

Failure to understand this reality explains why, in practice, support for free trade since the end of World War II has remained fragile despite the obvious benefits. Rooted largely in mercantilist mythology, the support was premised on the false belief that exporting is how one ultimately benefits from trade, while imports are the price we pay in order to export more. Multilateral and bilateral trade treaties tried to ensure "reciprocity": Each government was willing to allow its citizens to import more only on the condition that other governments allow their citizens to do the same.

Trade negotiations under this misapprehension did make trade freer. But the backward underlying belief was never sufficiently challenged, and so it was only a matter of time before free trade lost ground as the official ideology of policy intellectuals. If reciprocity is a critical ingredient then when the other side backslides, you should too.

There are many changes to domestic policy that could help protect Americans from the predations of protectionism. For instance, when considering whether or not to grant U.S. firms "trade remedies," such as countervailing duties, officials should have to take into account the consequences for American consumers of any tariffs they're thinking of imposing. Policy makers aren't currently required to do that, and one agency—the International Trade Commission—is actually forbidden from doing so.

This must change. Recent developments prove that it's dangerous to simply assume all U.S. presidents and a critical mass of legislators will remain committed to the principles of reciprocal free trade. Buyers of imported goods or products made with imported materials—which, to be clear, is all of us—can't depend on the economic acumen of the policy makers deciding whether or not to impose tariffs. Instead, consumer protections need to be built into the regulatory process. Because there are virtually always more workers in consuming industries downstream of the trade barrier than there are in the sector receiving the protection, a requirement to take the harm to consumers into consideration would make it very hard to impose protectionist policies.

Some free trade sympathizers have floated the possibility of Congress reclaiming its power to impose tariffs from the White House. Sen. Mike Lee (R–Utah), for instance, has introduced the Global Trade Accountability Act, which would require congressional approval for tariff increases or other "unilateral trade actions." Unfortunately, if this otherwise well-designed bill became the law of the land, it would be akin to guarding the hen house with a hungry dog instead of a fox.

An extensive literature shows that moving tariff-setting policy away from Congress (and its parochial, locally focused interests) was a critical part of reducing protectionist influence in Washington. President Trump is terrible on this issue, but in general, a president is more likely than are members of Congress to consider the interest of the entire country—and, hence, to support broad trade liberalization.

As long as most members of Congress fail to understand what free trade is really about—that is, as long as they fail to recognize that trade deficits aren't a problem and that foreign trade barriers penalize non-Americans far more than people here—requiring congressional approval will do little to protect us against tariffs. Want evidence? Behold how the allegedly free trade Sen. Marco Rubio (R–Fla.) eagerly supports protectionist measures against China in "retaliation" for that country's "unfair" trade practices. Alas, in Washington, D.C., today, both branches of government want to eat the chickens.

No renewed push for free trade will succeed if we don't first educate people about the economic fundamentals. The challenge for free-traders is to do more than restore the pre-Trump "Washington consensus." We must build a deeper, wider, and more durable consensus—one erected on the correct understanding that the ultimate goal of trade is to raise consumers' standard of living, not to artificially expand the sales of incumbent producers.

NEXT: Brickbat: This Again?

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  1. But let’s be careful not to jump to the conclusion that the unintended consequences of trade protectionism are actually unintended. Trade restrictions at the extreme are called sanctions and everybody accepts that sanctions are deliberately designed to punish a misbehaving country in a manner just short of warfare. Trade restrictions short of sanctions aren’t designed as rewards for domestic producers (although they’re often sold that way, the same way government spending is sold as “investing”), they’re designed as punishment for your enemies. It’s nonsense, but there’s a reason “cutting off your nose to spite your face” is a common expression, it’s human nature to be jealous and greedy and vindictively willing to cheerfully suffer in the name of making your neighbor suffer even more. It’s how socialism has survived as an evergreen promise as long as it has.

    (And I’ve said it before and I’ll say it again – foreign countries didn’t steal our manufacturing jobs, the EPA and the DoL traded them away for safer and higher-paying jobs and a cleaner environment. There’s no such thing as a free lunch and cleaner water and air and safer and easier jobs cost us all the dirty, stinky, dangerous, low-wage, low-skill, back-breaking labor jobs.)

    1. You make a great point Jerry. The larger point is that free trade beneifts some people in an economy and harms others. The problem I have with Reason is not that they support free trade. I support it as well. The problem I have with them is that they assume that free trade is effectively a moral question where only their side has any legitimacy rather than a political one where various competing economic interests hash out their differences.

      Reason refuses to acknowledge that there might be other legitimate values beyond the free flow of goods and overall wealth. Sanctions are a good example of this. Selling arms to Saudi Arabia is just as much the free flow of goods as China selling steel to the US. Reason is all about stopping the flow of arms to Saudi Arabia because they see other values beyond US arms manufacturers making a profit and Saudi Arabia engagin in what it sees as beneficial trade. And there is nothing unreasonable about that position.

      At the same time, there is nothing unreasonable about the government deciding that the country needs to keep a base level of manufacturing capability even if it means paying more for some goods. Whether they should or not is a complex debate about competing values and interests not the simple morality play of FREE TRADE versus the dreaded Nationalists that reason portrays it as.

      1. I thought libertarianism is largely about holding principled positions regarding individual freedoms, including the freedom to trade, without thinking too much about balancing competing values and interests, because to libertarians, freedom and respect for indeividual rights are, in most cases if not in all, the most important political values. I mean, I am no absolutist who is never in favor of any restriction of freedom, be it in trade or other areas of life (on trade, selling weapons to Saudi Arabia may be one example, although I don?t believe that private companies should be unable to do so, only that western governments shall take no part in it), but the way you put it sounds weird, because there can be arguments made for just about any regulation or restriction you can think of.

        1. You might act on a principle BUT if the country you are negotiating with is acting in THEIR BEST INTEREST as they see their best interest, your country is gonna get screwed.

  2. But let’s be careful not to jump to the conclusion that the unintended consequences of trade protectionism are actually unintended. Trade restrictions at the extreme are called sanctions and everybody accepts that sanctions are deliberately designed to punish a misbehaving country in a manner just short of warfare. Trade restrictions short of sanctions aren’t designed as rewards for domestic producers (although they’re often sold that way, the same way government spending is sold as “investing”), they’re designed as punishment for your enemies. It’s nonsense, but there’s a reason “cutting off your nose to spite your face” is a common expression, it’s human nature to be jealous and greedy and vindictively willing to cheerfully suffer in the name of making your neighbor suffer even more. It’s how socialism has survived as an evergreen promise as long as it has.

    (And I’ve said it before and I’ll say it again – foreign countries didn’t steal our manufacturing jobs, the EPA and the DoL traded them away for safer and higher-paying jobs and a cleaner environment. There’s no such thing as a free lunch and cleaner water and air and safer and easier jobs cost us all the dirty, stinky, dangerous, low-wage, low-skill, back-breaking labor jobs.)

    1. And I’ve said it before and I’ll say it again

      And you just did both.

      1. The squirrels helped him do it!

        I see Jerryskids points, to include the exporting of the “dirty, stinky, dangerous, low-wage, low-skill, back-breaking” jobs… That is, almost all of them, but excluding the ones that can NOT be exported, such as picking fruits and veggies on American soil. And those jobs, the xenophobes and enemies of free trade in labor, will want to flat-out KILL, to the point where American farmers cannot compete! The fruits and veggies are left to rot in the fields instead! Oh, but once again, one set of problems caused by Government Almighty, will be “solved” by yet another Government Almighty program; this time, yet more welfare for farmers! And import tariffs on imported foods!

        1. Oh, and the above will result in higher food prices, which calls for more welfare and “free food” for the poor, all to be paid for by our grandchildren, till the whole shithouse goes down in flames! It sure doesn’t look very hopeful that it will be fixed any time soon!

        2. Can’t we just have guest worker programs to do such jobs rather than importing millions of people to live here perminently?

          Beyond that, access to cheap labor can be a deteriment to the economy. If these jobs were mechanized, the agricultural productivity and overal wealth would increase. Supplying an endless stream of cheap labor for these jobs reduces the incentives to invest in capital because labor is so cheap. Perhaps we are better off with more capital and less labor?

          1. Yes, agreed on both points. Guest-workers like the 1960s “Bracero” program worked well. Automation? Fine, as long as it works. It is MUCH harder than one might think, at first glance. Apple-pickers? OK, auto-pickers work well, but are FILTHY expensive, and you have to custom-prune the trees to make it work, and the trees grow slowly. Apples are firm…

            Strawberries are NOT firm at ALL!!! Good luck coming up with an affordable auto-picker for those!!!

            My bigger point is, knee-jerk xenophobia and Trumpista-style politics gets in the way of a “bracero” program, or anything like it. We’re not being practical here at all…

            Latino immigrants, MANY of them, want to work here for a little while, then go home. All the border police make border-crossing VERY dangerous… So when they get here, they stay here, rather than risking travelling back and forth. The border militarization largely back-fires, in that what would otherwise be temporary illegal sub-humans, become permanent illegal sub-humans.

            1. You are right that these jobs are not equally mechanized. And I really don’t think many people would have a problem with an effective guest worker program. The problem is that the Republicans don’t trust the Democrats not to turn it into a path to residency and the Demcorats are not interested in anything that doesn’t get them new voters. So, we can’t seem to achieve reasonable sollutions to the issue.

              1. Sad to say, I think you’re correct. Also the Democrats would often want to go way beyond reasonable, in mandates for just exactly how far we’d have to go to provide good working conditions (for the “braceros”). Air conditioning to sleep in at night, in hot climates? That would perhaps make sense to me, even just in terms of keeping your workers productive! But then here comes my usual spiel…

                They need $25.00 or more in min wage, and health care insurance that covers alien abduction therapy, aromatherapy, Scientology therapy, addiction therapy, sex change therapy, species change therapy, enrich-my-uncle-the- hypnotist therapy, past-lives regression therapy, sex addiction therapy, love-your-Government -Almighty relationship therapy, therapy-therapy, and on and on…

        3. The fruits and veggies are left to rot in the fields instead!

          I’ll believe your arguments that Americans don’t want to do the work and that the crops are rotting in the field for abundance of demand and lack of labor when I see the ‘locally grown’, ‘ogranic’, and ‘non-gmo’ brands/gimmicks disappear. Until then, demand is high and incomes command a premium. If strawberries are rotting in the field in S. California, it’s because the labor is better paid when they milk almonds instead.

          1. Reason is forever preeching about comparative advantage and how we should move industries oversees if they offer cheap labor and a comparative advantage. If it is true that Americans want do these jobs at a low enough wage to be competitive with foreigners, the solution by reason’s own logic on trade is for these industries to move overseas to places where the labor is cheaper and people will do these jobs at a low enough wage.

            Somehow all of that gets forgotten when it comes to these industries and Reason is all about the necessity to import the labor into the US rather than move the industry to the workers like it advocates in every other context.

  3. “No renewed push for free trade will succeed if we don’t first educate people about the economic fundamentals.”

    Readers of Reason, beware, read the Reason ARTICLES, and not the COMMENTS, if you want the truth about economics!!!

    Because 3/4ths of the comments are WAAAAY off in the weeds, about “free trade”, most especially!

    1. “Listen only to The Narrative!”

  4. There remains a profound misunderstanding about the benefits of a free flow of goods and the conditions under which these benefits materialize.

    It’s not mere misunderstanding. It’s total ignorance of even the most basic of economics, amalgamized with crass jingoism.

    There’s no requirement for reciprocity, because the burdens of protectionist policies always fall first and foremost on the people in the country practicing protectionism.

    Those who ask for ‘reciprocity’ are not defending trade nor are they interested in it. The call for reciprocity opens the door to move the goalposts whenever political expediency dictates, which allows for trade to remain restricted and controlled by economic central planners.

    1. Well, there is also a massive amount of pure unadulterated collectivism in the mix.
      All of the “managed trade” fanatics here are collectivists to the core.

      1. Yes, I agree! All the “free trade, but…” amen chorus, in various flavors!

        “I like free trade, but we need to keep GMOs OUT of our country!”

        “I like free trade, but the illegal sub-humans who want to pick our fruits and veggies? Keep them OUT!”

        “I like free trade, but we have to make sure their workers in Stanstanstanstanstanistan are treated fairly! They need $25.00 or more in min wage, and health care insurance that covers alien abduction therapy, aromatherapy, Scientology therapy, addiction therapy, sex change therapy, species change therapy, enrich-my-uncle-the- hypnotist therapy, past-lives regression therapy, sex addiction therapy, love-your-Government -Almighty relationship therapy, therapy-therapy, and on and on…

        1. “I like free trade and especially freedom when it gets me cheap handmade crap made by the oppressed peoples of wherever.”

          “Centralized banking is a sham but trade deficits with China are NBD.”

      2. Free trade is the centralized Chinese banking system we *all* support together.

  5. “There remains a profound misunderstanding about the benefits of a free flow of goods and the conditions under which these benefits materialize.”

    Shorter: They’re not buying our globalist bullshit anymore!

  6. Quoting Krugman and constantly misrepresenting tariffs is a great way to show how well you understand economics…

    If you don’t oppose higher federal corporate taxes, then you have no business virtue signalling about “tariffs being a tax on consumers”. Corporate taxes are more directly passed through to consumers than tariffs are. One could argue that all corporate taxes are actually paid for by the consumer. Tariffs can be passed through, but are not guaranteed to be.

    1. Who here do you think doesn’t oppose higher federal corporate taxes?

      1. Sudderman for one. He is forever writing about the evils of “deficit financed tax cuts”.

        Vinni makes a very good point that tarriffs are nothing but taxes on foreign goods. If you think tariffs are the greatest evil on earth, then you should think the same thing about the VAT or any other tax on sales of goods rather than income.

        1. “Taxes on foreign goods”, paid for by the exporter, who will attempt to recoup as much of the cost as possible. There’s no guarantee that the exporter will recoup any of the added cost. Just as there’s no guarantee that the exporter won’t recoup more than the added cost. I mean, it’s not exactly rocket surgery that companies will do everything in their power to squeeze every possible dime out of the consumer.

          1. The market adjusts to tarriffs just like it does to any other tax. And unless there is a cartel among domestic producers, there will still be competition among them even if you were to ban all foreign competitors.

            1. Yes, and that competition is what should prevent a foreign company from being able to fully pass on the added costs of tariffs.

              1. Of course, that also doesn’t prevent the entire market from adjusting upwards to compensate. Ending with higher prices all around, and no net change to the market.

                But, I’m only in favor of doing what is necessary to get China to clean up their act (I would prefer far more than just some little tariffs, by which I do not mean more/bigger tariffs), not tariffs in general. We have to nip China in the bud, before they do overtake our economy preventing us from having an impact on their trade practices.

      2. I can’t speak to whether this author opposes higher corporate taxes or not, but the libertarianism of most of the authors here is questionable enough to make it a not entirely unreasonable assumption.

  7. Rooted largely in mercantilist mythology, the support was premised on the false belief that exporting is how one ultimately benefits from trade, while imports are the price we pay in order to export more.

    If deRugy is going to make that claim, then she needs to at least try and square with the facts that the US econmy was largely protectionist during the 19th Century and became the most productive on earth during that time and that nations like Japan and South Korea went from being completely destroyed at the end of World War II to world industrial powers in a few decades despite following just these sorts of policies.

    Meanwhile, the United States has seen a decline in the real wages and standards of living of its middle class during the last thirty years under the policies DeRugy advocates. Yes, correlation does not equal causation. Free trade isn’t the only factor in that and maybe it happened in spite of the free trade policies. Whatever the answer, the question cannot be just dismissed. DeRugy needs to square her theory with the facts in evidence not just breathlessly proclaim that any other explaination is “mythology”.

    1. I dunno. These analogies go round and round.
      If the government is subsidizing flour for German bakers the farmers plant more wheat instead of corn.

      But I don’t want baguettes I want corn whiskey which has gone up in price as the supply dropped. Now I am double screwed. I am paying more taxes to the wheat farmers and more for whiskey.

      So I buy French vodka instead. I have no idea what that will do for the baking industry but I am feeling much better about it

  8. How many economists does it take to change a light bulb?

  9. I use to strongly believe in free trade UNTIL I found out that to many in our government ‘free trade’ meant WE would not charge a tariff but our trading PARTNER could. So we had things like a 0% tariff on Canadian goods but they had a 285% tax on American dairy products. Apparently none of the geniuses in our government realized a 0% tariff was not a leverage tool to ever get Canada to change that tariff. Not until President Trump threatened Canada with a tariff of our own did they lower that tariff. Countries do not act for the common good except when it is in THEIR national interest to do

  10. Rubio is a statist interventionist right winger. We dodged one with Trump beating him.

  11. The commentary here reinforces De Rugy’s point . Even on a libertarian site , free trade faces a lot of opposition.

  12. No trade is ever Free, you have to balance rewards and costs.

  13. ” Paul Krugman’s excellent 1996 book, Pop Internationalism. ”

    The resident Reason economist is now a Paul Krugman fan.

    He should have called his book Pop Globalism.

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