“Our trade policy rests firmly on the foundation of free and open markets. I recognize … the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations.” – Ronald Reagan, 1986
Republicans have long been the party of free trade. We’ve argued vociferously on its behalf because it’s economic benefits are so clear: It encourages American producers to focus in areas where we have a comparative advantage and it allows American consumers to have unfettered access to the goods they want at the best price. Of course, it also carries the benefit of expanding the cause of freedom, by eliminating restrictions on free enterprise and restricting governments’ ability to pick winners and losers.
It’s a cause that has been almost universally supported by economists, a group of academicians who rarely agree on anything. A recent compilation of leading economists’ positions on key issues found that none disagreed with the notion that “freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any affects on employment.” As MIT’s Richard Schmalensee wrote of his answer, “If that’s not right, almost all of economics is wrong.” Indeed, free trade is about the only banner under which names like Paul Krugman and Milton Friedman can both march.
Despite the ideological pedigree and the scientific consensus, Americans, and especially Republicans, are becoming increasingly wary of trade. In fact, a recent Economist/YouGov poll that asked whether people think free-trade agreements have been good or bad for the U.S. found that 59% of Democrats believed the impact was very good or somewhat good while 43% of Republicans said the same. Likewise, 20% of Democrats said the impacts were somewhat or very bad, a position shared by 39% of Republicans.
Candidates from all political persuasions are leveraging this increasing skepticism about trade’s benefits, and general working-class anxiety about job security, to promote anti-trade policies. Democrat Bernie Sanders, for instance, has made the elimination of the Trans-Pacific Partnership a cornerstone of his campaign and Republican Donald Trump has argued in favor of tariffs on foreign goods in an effort to level the playing field.
Undoubtedly, these positions appeal to many blue collar workers who have seen their jobs slowly disappear over the last two decades. And it’s not that these voters are wrong to fear trade, because frankly, the benefits of trade are often misunderstood and the costs of trade are often overlooked.
As economist Thomas Sowell once wrote, “There are no solutions. There are only trade-offs.” In the case of trade, the trade-off is that as the United States’ focuses on areas where we have a competitive advantage, jobs are lost in areas where we don’t.
That does mean layoffs in certain sectors of the economy, a fact that is not lost on many midwestern voters. But, it also means some incredible, though more widely dispersed benefits. As Moody’s economist Adam Ozimek writes, free trade helps the most productive firms expand, which increases total productivity in a country and makes its citizens wealthier. It creates economies of scale that reduce costly downtime and reconfiguration costs among manufacturers. And new research suggests that it increases innovation, thus better aligning the economy for the future.
So if expanding economic protectionism at the cost of freer trade is not the answer, then what’s the right question? Ozimek writes:
The question is, what can we do to help those who lose out? One suggestion is to protect or subsidize existing manufacturers to try to prevent job losses in the first place. There are two problems with this.
The first is the extensive research highlighted above showing that trade exposure has increased productivity and innovation. U.S. productivity growth overall has slowed, and the last thing we want to do is cut off this source of productivity and innovation. Protecting unproductive firms would risk doing just that.
Second, protecting manufacturers does not mean protecting workers. Manufacturing output in the U.S. has increased even as employment as fallen thanks to increased automation. If output is subsidized it does little to change the fact that robots increasingly replace workers and that low-skilled manufacturing workers who lose their jobs are struggling to be re-employed.
How do we help the concentrated group of losers while maintaining the broad benefits of trade. That’s the question that presidential candidates should be asking voters.