Donald Trump and Hillary Clinton may disagree on a number of issues, but there’s one issue where the two of them are putting up a united front: free trade.
Donald Trump has made free trade a major part of his campaign, threatening a tariff as high as 35% on China, who he sees as America’s biggest threat. China, however, is only the most notable victim of Donald Trump’s protectionist rhetoric. The presumptive GOP nominee has made clear his intentions to dismantle the North American Free Trade Agreement (NAFTA), the single largest free trade agreement (FTA) in existence, as well as the Trans-Pacific Partnership (TPP), a similar FTA between the U.S. and much of Asia (notably, not China). If Donald Trump has his way, free trade will be a thing of the past.
Similarly, Clinton, the likely Democratic nominee, is no friend of free trade. Her position on the issue, however, is far less consistent than The Donald’s–a feat to be sure. As First Lady to Bill Clinton, Hillary praised NAFTA, and as President Barrack Obama’s Secretary of State she was a leading proponent of the TPP. From those past positions, one might suspect that Clinton was a die hard free trader, but the truth is somewhat murkier: Clinton’s support for NAFTA has wavered over the years; she voted against the Central America Free Trade Agreement (CAFTA); and she recently announced her opposition to TPP. While her position on free trade may not be the most consistent, she is clearly running on a protectionist platform this year.
With so much vocal opposition to free trade, it would be understandable for you to think that free trade must be really bad for America. After all, Trump and others repeatedly point out the fact that America is in a trade deficit with China, millions of American jobs have transferred overseas and Americans don’t make things anymore. It sounds unsustainable, but what exactly is free trade, and why is it so bad for America?
Free trade is actually a fairly simple concept. Free trade is the policy of not restricting imports or exports to/from other countries. That means no tariffs, no quotas and no subsidized exports. Basically, free trade is what you get when you apply the principles of free markets to international trade.
Adam Smith, the granddaddy of free market economics, had this to say about international trade:
“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.. . . If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce of our own industry, employed in a way in which we have some advantage.”
In the centuries since Adam Smith so succinctly explained free trade, much of the world has embraced the policy to an extant. While no country embraces free trade 100%, most countries have joined the World Trade Organization which limits anti-free trade policies or have set up free trade agreements, the most notable being NAFTA. While tariffs and other protectionist policies still exist in many countries, the general trend has been towards lowering the barriers to trade around the world.
The results of the proliferation of free trade policies have been undeniably positive. Free trade, and free markets more generally, has helped lift over 1 billion people out of extreme poverty! No government program has had anywhere near that level of success. This development is wholly the result of governments getting out of the market and not interfering.
Think about all the people who are left better off because of free trade. When a manufacturer moves overseas to profit from lower labor costs, society benefits as a whole. Overseas workers gain employment that they otherwise wouldn’t be able to find, and their standard of living rises. The company saves money from cheaper labor, and is able to invest more into the company and pass some saving on to consumers, who can buy cheaper products. With the money they save from cheaper products, consumers can purchase goods from other sectors of the economy. Free trade is what powers our economy!
Why then, do Trump and Hillary oppose free trade? The truth is, not everybody benefits in the short term from free trade of free markets. The workers left behind by the company don’t notice all these great benefits of free trade. They’re left jobless, and unfortunately, the labor market in America isn’t as mobile as once thought. So not only do they lose their jobs, they face increasing difficulty in transferring to a different job. While in the long term they can find new work, and the economy will be better off for it, there’s no getting around the negative effects of free markets.
Trump and Hillary don’t look at the good that free trade does over the long term. What they focus on is displaced workers, and all of their protectionist schemes are an attempt to protect American jobs in a few select industries at the expense of the economy as a whole. No one likes the negative side of free markets, but it is absolutely necessary for future growth and prosperity. That’s what Trump and Hillary don’t understand.
So next time you hear protectionist fearmongering from any presidential candidate, remember that they’re asking you to sacrifice growth and prosperity for the sake of a few favored industries. A few businesses will thrive in their protectionist world, but America will suffer.