Next Steps in the Fight for Free Trade
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.