Trump's Tariffs and Why America Needs a Patriotic Case for Free Trade

 
 

While the economic arguments for free trade remain compelling, the political rationale requires a long-overdue overhaul.

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When President Donald Trump announced in March his intention to raise tariffs on steel and aluminum imports, much of the commentariat expressed shock and dismay. They should have known, however, that this was coming. Trade policy is one area in which President Trump has long expressed skepticism of establishment opinion.

Until relatively recently, a mildly bipartisan consensus favoring trade liberalization existed in much of America. NAFTA, for example, was backed by Democrat and Republican presidents as well as congressional majorities composed of sizable blocks from both parties.

One reason for this support is that the economic logic for free trade has become difficult to deny. The evidence is overwhelming that opening a nation’s markets to the world lowers prices for consumer goods, raises its overall living standards, and enables that country and its communities to refine their comparative advantages.

Politically, however, free trade has acquired some very negative baggage since the late 1990s. This is making trade liberalization much harder to sell to Americans, including many who supported Donald Trump in 2016 because of his trade stance.

Many free traders’ bad habit of skipping lightly over the effects that opening markets has had on particular communities is one such burden. Not every American “wins” from trade liberalization in the short-to-medium term. That’s not a reason to embrace protectionism. Still, free traders should do more to acknowledge these realities and think harder about how to ameliorate the turmoil in non-protectionist ways.

Another encumbrance is free trade’s deeply-counterproductive association with “Davos Man.” This term was coined by the political scientist Samuel P. Huntington to describe those “academics, international civil servants and executives in global companies, as well as successful high-technology entrepreneurs” who regard nation-states as passé and believe that global harmony would ensue if only they were in charge. Their association in many people’s minds with free trade is bound to alienate those Americans who, Huntington noted, “remain the world’s most patriotic people” and might otherwise be receptive to open markets if they didn’t think it implied being ruled by Goldman Sachs, Silicon Valley liberals, United Nations bureaucrats, and Tony Blair.

All of this underscores the need for American free traders to recalibrate their political arguments for trade liberalization. That doesn’t just mean disassociating free trade from naïve fantasies of a borderless planet or the one-world globalist ideology that animates the European Union’s political-bureaucratic class. It also requires free traders to show how protectionism has undermined America’s well-being and, by contrast, how free trade can strengthen the United States’ position in the world.

How Protectionism Hurt America 

Until 1947, protectionist measures tended to be the rule rather than the exception in America. This has led some to argue that protectionism contributed to America’s rise to the status of economic superpower between 1776 and 1890.

Correlation, however, isn’t causation. There is considerable evidence indicating that protectionism actually (1) retarded America’s economic development and (2) facilitated some unwholesome political trends. In short, America’s economic success story largely occurred despite protectionist agendas—not because of them.

One major study of the post-Civil War period, for example, found that protectionism undercut the gains made by America through technological innovation because the artificially high price of imported capital goods made it harder and more costly to build America’s transportation system and industrial infrastructure. Another analysis of the late nineteenth-century American economy illustrated that economic growth during this period was driven primarily by population increases and capital accumulation rather than productivity improvements. Indeed, productivity growth was faster in those sectors of America’s economy “whose performance was not directly related to the tariff.”

Putting aside the economic arguments, protectionism in nineteenth-century America also had deleterious political consequences. Most prominently, it contributed to cronyism’s growth among American business leaders. In his monumental work The Tariff History of the United States (1888), the Harvard economist F.W. Taussig established that the tariff acts of 1864 and 1867 were largely drafted by those whose industries were to be protected. They also resulted in the imposition of import duties that, Taussig noted, had the “chief effect” of putting “money into the pockets of private individuals.”

Moving into the twentieth century, the damage caused by the Smoot-Hawley 1930 Tariff Act is hard to ignore. As Douglas A. Irwin points out in Peddling Protectionism: Smoot-Hawley and the Great Depression (2011), the raising of tariffs on more than 20,000 imports provoked significant retaliation against the United States. This helped reduce U.S. exports. As a result, Irwin states, “America’s share of world trade fell sharply in the 1930s.”

Once again, protectionism’s negative effects weren’t confined to America’s economy. The Act itself amounted, according to Irwin, to “a mass of private legislation carried out with little regard for national interest.” For once the door was opened to the prospect of tariff increases, many industries clamored for protection. Smoot-Hawley’s drafting was thus distinguished, Irwin writes, by “logrolling, special interest politics, and [an] inability of members of Congress to think beyond their own district.”

Put another way, the 20,000 tariff increases had little to do with a concern for America’s general well-being. They owed far more to that perennial problem identified long ago in Adam Smith’s Wealth of Nations: rampant collusion between merchants and legislators at other people’s expense—in this case, millions of other Americans.

How Free Trade Makes America Great 

So how does free trade bolster America’s standing in the world? Here are three particular benefits that free traders might consider emphasizing.

First, free trade helps make America a more economically flexible and disciplined country. Openness to global competition prevents, for example, American businesses from becoming complacent. Large, medium, and small companies are constantly required to think about how to innovate, increase efficiencies, and redeploy capital so as to maintain a competitive edge.

American workers are likewise discouraged from supposing that there will be permanent jobs in industries that, despite plenty of protection, are becoming globally uncompetitive. Instead, they are encouraged to be more adaptable and plan their lives accordingly. This is undoubtedly easier said than done. The alternative, however, is fewer job opportunities in declining sectors of the economy and the persistence of false expectations about the future.

A second national benefit of free trade is that it forces American governments to consider what’s in the United States’ long-term interest. Protectionist measures are invariably about reacting to the here and now. By contrast, reducing tariffs and subsidies facilitates prosperity for the many rather than the few over the long term.

This leads us to a third benefit conferred upon America by free trade: it helps to diminish cronyism.

Protectionism is, after all, usually tied to the promotion of particular interests. Invariably, these are industries and unions with good political connections. By contrast, when a country abandons protectionism, everyone becomes subject to the same trade rules. To that extent, free trade increases fairness throughout the American economy.

Of course, as long as people are human, cronyism won’t be eradicated. Many American business leaders want to be shielded from foreign competition instead of doing the hard work of innovating and seeking greater productivity. Nor is there any shortage of legislators happy to implement protectionist measures in return for electoral and financial support. A principled commitment to free trade, however, contributes to cronyism’s minimization insofar as it limits lawmakers’ ability to offer favors. That can only be good for the body politic.

And China?

Protectionists often contend that trade policy in the real world can’t be separated from America’s geopolitical challenges. Today this especially concerns an authoritarian Chinese regime’s pursuit of some decidedly global ambitions. Protectionist policies, the argument goes, must be part of America’s strategy to counter these developments.

If American free traders want to refute such claims, they must show how maintaining a free trade agenda will make America politically stronger and more economically resilient than countries that play protectionist games. One way of doing this is to show how protectionism will weaken rivals like China.

While China is often touted as having enthusiastically embraced economic globalization, its opening to the world economy has always been selective and cautious. At different times, the regime has lowered tariffs in some areas while raising them in other sectors. China also subsidizes many exports, restricts foreign investment, and routinely violates World Trade Organization rules and protocols. Moreover, protectionist interventions in China don’t just emanate from Beijing. Most Chinese provinces and towns have their own regulations that seek to protect local businesses from foreign competition.

These measures might serve some of the Chinese regime’s immediate political goals, such as maintaining its control over society and the economy. But over time, such policies will make China’s economy less competitive and less attractive to foreign companies and investors. The consequent waning in economic strength will eventually affect China’s ability to project power abroad.

But if this is true, why would Americans want to replicate protectionist programs in their own country? Or, stated differently, why would Americans want to make America less competitive, less enticing to investors and innovators, and therefore less able to maintain its position as the world’s leading economic power?

American protectionists have long wrapped themselves in the flag. It’s time for American free traders to challenge that linkage directly. Free trade advocates need to stop waxing lyrical about perpetual-peace-through-commerce and instead focus on how free trade serves America’s long-term national interests. For if free trade doesn’t become regarded as a position fit for patriots, it’s not just trade liberalization and its undeniable poverty-reducing effects that will be jeopardized. So too, in due course, will America’s preeminence across the globe.

Samuel Gregg is Research Director at the Acton Institute.

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