Unpopular free trade is better than popular protectionism
By Sharon Xiaohui Wu
Sep 23, 2016 at 11:00 AM
Democratic presidential nominee Hillary Clinton delivered her economic plan Thursday, Aug. 11, 2016 in Warren, Mich. "I will stop any trade deal that kills jobs or holds down wages, including the Trans-Pacific Partnership," Clinton said. (C-SPAN)
There is at least one concept that all presidential candidates agree on: Free trade is bad. Both Hillary Clinton and Donald Trump are against the Trans-Pacific Partnership (TPP), although this trade agreement is specifically designed to "contain" China, which alone should have made it a crowd-pleaser.
But free trade is not only unpopular among politicians and union workers. As an economics teacher, I asked college students about their opinions on free trade, and those students who spent their first back-to-school week studying comparative advantage and gains of trade day in and day out, said free trade was a good idea but should not be the policy of this country. They prefer to impose tariffs and "punish" dishonest trade partners. This growing trend of protectionism, as popular as it is, should not be the predominant belief of a country that once thrived on trade and prides itself on being a global leader.
Free trade is perhaps the single best established theory in economics. For two countries with technological differences, by specializing in the goods they have comparative advantage in and trading with each other, both countries have more to consume. A country where different resources are different in their abundance level will export goods utilizing its abundant resource intensively. In either case, world output increases and consumers have more varieties to choose from. On the production side, trade opens up massive international markets, so that more productive firms expand while less competitive ones exit, which enhances the overall productivity of an industry.
The negative effect of trade barriers is also well documented. Tariffs and quotas lead to excessive domestic production and contracted domestic consumption with a higher price level, generating a net loss in welfare. Trade barriers also draw similar barriers from foreign countries, damaging consumer welfare among all parties. In addition, a larger free trade zone is better than a smaller one because it increases the chances of importing from the most productive country, instead of from member countries that charge higher prices.
Recent numbers show that 65 percent of Americans favor import restriction policies while in a similar poll in 2000, 56 percent of Americans considered trade as an opportunity for domestic growth. The percentage of economists from leading universities who believe the gains from trade outweigh the losses is roughly 95 percent. This trend toward protectionism, as well as the gap between academics and the public, is alarming.
The primary argument given against free trade is domestic job loss. While this may occur for some industries, it is not fair to ignore that trade is creating jobs in other industries. In the case of the U.S., with abundant land and capital, agriculture and high-tech industries flourish. Yet American politicians are determined to "bring back" labor intensive jobs, which even China is trying to grow away from. Such jobs are usually located in industries that pose threats to both workers' health and the environment. In my hometown, an industrial city in China, there was a high incidence of lung cancer due to the air pollution caused by steel factories. And Foxconn, a major manufacturer for Apple, enclosed employee dormitories in Shenzhen in steel wires to prevent jumping after nearly a dozen workplace suicides. Are these the kind of jobs that are desired in the U.S.?
Another concern is widening income inequality. This is a real problem, but it is not necessarily caused by trade, which creates lots of labor intensive jobs in China but does not help close the huge income gap. Profits and wages are dropping in traditional industries globally, and the best way to tackle income inequality is not to have more low-wage jobs but to make it possible for workers to transfer to prospering industries. Change of any kind is scary, but consider this: The era of the robot will eventually come, and all of us will need to change anyway, either our jobs, lifestyles or mindsets. The earlier we make that change, the better.
The world used to look at America with sheer admiration for its openness and creativity. Now America wants trade deals that particularly benefit itself and to compete with developing countries for low-wage jobs. This sad protectionism cannot make a great America.