Economy

The Importance of Free Trade

Trump's America-first agenda is welcome, but he must take care to ensure beneficial negotiations.

Brian Mark Weber · Jun. 15, 2018

During Donald Trump’s 2016 presidential campaign, voters across the country were inspired by an America-first message and the promise that other nations would no longer take advantage of the United States during a Trump presidency. Candidate Trump stressed the need to restore our economic independence and future growth by making sure that any trade agreements be made in our national interests.

Fueled by angst over our rising national debt and our seemingly insurmountable trade deficit with nations like China, it’s no wonder that so many Americans then and now continue to buy into the false idea that trade deficits are harmful to our economic vitality. This belief is largely founded upon the idea that trade merely comes down to imports and exports.

One aspect of the debate over trade that needs to be clarified is the U.S. trade deficit, which is often the focus of economists and politicians who push for protectionist trade policies. In reality, there is much more to the economy than merely the balance between the value of goods sold to one country and the value of products we purchase from them.

The assumption that trade deficits are inherently bad for our economy is an oversimplification of the problem. In fact, America became a world economic and military superpower despite the fact that we’ve had trade deficits throughout most of our history. And if trade surpluses are a sign of economic strength, ask anyone living during the Great Depression how well that worked out for the country.

Bloomberg News reports, “Just looking at the goods and services trade deficit is misleading and doesn’t capture the true size of U.S. business interests, according to Deutsche Bank economists. While trade and corporate data aren’t usually combined, if you add up all trade data, sales by U.S. companies in foreign countries and foreign firms in the U.S., ‘U.S. companies have sold more to the rest of the world than other countries have sold to the U.S. in the past ten years,’ writes chief China economist Zhang Zhiwei in the report.”

Bloomberg adds, “Any retaliation against firms in China may also have an effect at home. That is because the success of those firms overseas provides a boost to the U.S. economy and also partly explains why unemployment is lower in the U.S. than in its major trading partners, according to Zhang.”

President Trump is right to make trade deals in our national interest, but in reality the U.S. is already largely benefitting from the current system even if some aspects of trade need to be reworked. Trump’s focus on protective tariffs are largely made with good intentions. It’s not the spirit of tariffs that’s the issue, but instead it’s the long-term implications of pursuing protectionist trade policies with other countries that will actually harm our economy.

(The U.S. and China announced tit-for-tat tariffs today.)

With all of the misinformation about trade over the years, it’s no wonder that so many Americans are skeptical of free trade, but in fact it’s not free trade that causing the loss of certain jobs or industries.

David Harsanyi writes, “Many voters blame international trade agreements for trends that are largely a product of automation or increased production. It’s a story as old as the division of labor. Politicians pretend to show their empathy for the victims of creative destruction by demanding ‘fairness.’ Instead, we end up distorting markets, killing new jobs and ignoring reality.”

In other words, protectionism is actually detrimental to our economic well-being

And damaging relationships with other countries, particularly those like Canada that have a long history of being friendly to the United States, comes at an even greater cost when those countries retaliate by imposing tariffs in exchange for our own.

All this tough talk from Donald Trump has a populist appeal, and we should be glad to have a president willing to look out for what’s good for the country and for American workers. And to the president’s credit, huge strides have been made in his first two years to make our economy stronger and more competitive through regulatory reform and other measures. Trump is also right in the sense that some trade policies are unfair to American workers and the American economy.

But the president needs to make sure that free trade doesn’t become government trade. And that’s exactly what will happen if Washington continues to put its thumb on the scales. When the exchange of goods and services is manipulated by bureaucrats and politicians, Americans themselves will pay the expensive price in more ways than one.

In the end, an America-first policy is not only popular rhetoric but is one that we can all rally around. After all, don’t we all want America to look out for its own interests? But we can do this more effectively by ensuring that free trade with other nations is not damaged by manipulative governments engaging in tariff wars. America didn’t become a prosperous nation by building an economy regulated by the state, and we can’t expect to remain a global economic power by doing it now.

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