Trump’s trade disaster
The worst thing Donald Trump has done thus far isn’t his clumsy executive order on refugees (which in substance actually only slightly revises the approach Barack Obama followed throughout most of his presidency) or even his embarrassing coddling of Vladimir Putin and Russia accompanied by suggestions of moral equivalence.
No, it is his charting of a determined protectionist course on trade.
Trump’s abrupt withdrawal from the Trans-Pacific Partnership (TPP) might be the single most damaging step taken by any U.S. president in recent decades because it portends a rejection of the global free-trade system that America has labored for so long to construct. And because in it might also be found a first step toward a careless discarding of the broader, American-led international order that has guaranteed peace and stability since the end of World War II.
The hope was that Trump’s campaign promise to withdraw from trade pacts was just harmless populist blather designed to pry (by definition) economically illiterate Bernie Sanders supporters away from Hillary Clinton. Given Trump’s astonishing historical ignorance, the thought even occurred that his invocation of “America First” was innocent of any understanding of its provenance in 1930s isolationism and anti-Semitism.
At the least, it seemed incomprehensible that anyone seeking the highest office in the land (a wealthy businessman, no less!) would prefer trade wars that made everyone poorer over the free movement of goods and services that enhanced the prosperity of nations.
As virtually everyone who has passed Econ 101 can attest, free trade benefits consumers by guaranteeing a wider array of higher-quality products at lower prices (with protectionism thus constituting a tax on such consumers). But it also benefits workers and companies, too, in the case of the former by creating more and better jobs than it destroys, and in the case of the latter, by providing access to foreign markets and investment opportunities that a closed trade system wouldn’t.
Competition is never bad, in personal life or the life of nations, and when our nation’s firms are forced to compete with the best the world has to offer, those firms become better managed and more innovative and produce better products. By such logic, the protectionist impulse Trump follows represents a thundering vote of no confidence in American companies and workers.
Ricardo’s “law of comparative advantage” still holds, perhaps more than ever, and there is no reason as a result to believe that protectionist approaches which seek to defy its operation will produce anything other than what they have always produced, which is widespread impoverishment and economic decline.
It is also easy to forget some basic principles here—that, apart from the benefits in terms of job creation and economic efficiency, nations that trade freely acquire a stake in each other’s prosperity that reduces the likelihood of war: in the case of U.S. relations with a rising China, most conspicuously, the increasingly interlinked nature of their economies makes conflict between them increasingly difficult for either side to contemplate.
Protectionism leads to tit-for-tat escalation that can turn trade wars into real wars, and, within this context, no one remotely conversant with the tragic history of the 1930s (and, again, this might leave Trump out) can miss the linkage between the Smoot-Hawley tariff and the shutting down of the global trade system, on the one hand, and prolongation of the Great Depression, the rise of European fascism and the worst war in human history on the other.
Finally, there is the philosophical commitment that is being weakened; that, as a Yankee trader nation that practices free trade at home, we inevitably benefit from and wish to see it practiced abroad as well. Just as we wouldn’t think to unduly impair the flow of goods and service between people in Arkansas and Missouri or between those in Vermont and Maine, it would make little sense to do so between Americans and Poles or Koreans or Argentinians.
But the saddest aspect in all of this is that so much progress was being made not that long ago to overcome the xenophobia and atavism that protectionism springs from—NAFTA had been established and most of the other countries of the western hemisphere were knocking on its door, in some cases creating regional pacts of their own (the Andean Community and Mercosur). The European Union (EU) was expanding eastward to incorporate the nations of the former Soviet bloc and thereby create the world’s largest free-trade zone. And the intermittent rounds of the General Agreement on Tariffs and Trade (GATT) had finally been effectively institutionalized with the creation of the World Trade Organization (WTO).
Only a few years or so ago, it was possible to see those efforts, and consequent steps like the TTP and the Transatlantic Trade and Investment Partnership (or T-TIP), combining to finally realize the dream of a global free-trade system expressed back in 1944 at Bretton Woods.
It is a truly strange and sad notion that to now make America “great again” we should turn our back on the free-trade principles that did so much to make it great in the first place.
But such is the perverse logic of Trump.