Will There Be a Home for Free Traders?
Despite several interviews revealing a profound lack of basic knowledge about public policy and government, 28-year-old self-described democratic socialist Alexandria Ocasio-Cortez is a darling of the media and the left. Her surprise primary victory in a heavily Democratic district all but guarantees she will win a seat in the 116th Congress and have many pundits pronouncing her the future of the Democratic Party. The prospect of an emergent far-left faction in the United States raises many grave concerns, but one area that’s getting little attention is what it could mean for the future of trade.
By now, President Trump’s attitudes toward trade are well-known. While he occasionally makes superficially free trade-oriented declarations — such as his call for the G7 to eliminate all tariffs and subsidies — it’s always premised on the erroneous belief that foreign-government interference is behind the U.S. trade deficit, which he also wrongly considers evidence that America is being cheated.
Trump has a flawed understanding of both the causes and significance of trade deficits. Briefly put, trade deficits reflect the fact that Americans can afford to buy a lot of goods from other countries, and that the United States is an attractive destination for foreign investment, which promotes American economic growth. The dynamics that have led to sustained trade deficits aren’t going to be significantly affected by his protectionism, unless his tariffs become so onerous as to make Americans significantly poorer and unable to afford as many imports.
Trump’s misunderstanding of trade deficits matters because it means he may still push for tariffs even if other nations drop theirs. If the United States continues to run trade deficits, even in the absence of tariffs abroad, Trump may conclude that a world with zero tariffs isn’t good for America after all.
In this sense, Trump isn’t all that different from the wing of the Democratic Party represented by Ocasio-Cortez or her former boss Sen. Bernie Sanders. Consider her discussion of trade during an interview with The Intercept: “(W)e have the destabilization of countries around the world due to wealth inequality that has been historically powered by global trade deals that concentrate the gains of trade into multinational corporations as opposed to the workers who create that wealth.”
Swap a few words around and a passage like that could pass for something uttered by President Trump. He blames foreigners instead of multinationals, but both politicians are highly critical of existing deals. And both treat trade as zero-sum — where someone is gaining and someone else, inevitably America, is losing.
The truth is that even under less-than-perfect conditions, the voluntary exchange of goods is mutually beneficial. It took a long time and numerous costly wars before a global system was established that permitted individuals to buy and sell across political borders without significant interference. And once that happened, a sharp rise in global prosperity followed. What barriers now remain should ideally be removed, but that’s best achieved by working within the system, not tearing it apart.
During the campaign, Trump said of Sanders, “He and I are similar on trade.” Trump was correct. Despite seemingly falling on different ends of the political spectrum, both men are populists who apparently believe that governments are better than markets at managing economic activity.
Such bipartisan protectionism isn’t new. Support for free trade has never fallen strictly along partisan lines. NAFTA cleared the Senate by a narrow margin, with similar levels of support from Republicans and Democrats, and was signed into law by Democratic then-President Bill Clinton. And while Republicans typically claim the mantle of free markets — despite being justifiably confident in the superiority of the American system during the Cold War — on trade, they inexplicably tolerate the notion that foreign governments with centrally planned economies may succeed so spectacularly as to bury the U.S. economy.
While Sanders lost his bid to take charge of the Democratic Party, his acolyte is on the rise, and many seem eager to anoint her as their standard-bearer. Unfortunately, that means Democrats are less likely to provide meaningful opposition to Trump’s trade agenda should they capture either chamber of Congress.
Trump now directs both the GOP and the nation, and Republican members’ attitudes toward trade have so far been muted to not clash with the president’s agenda.
Yet, recent polls reveal that a vast majority of Americans still support trade. Perhaps these results can provide congressional Republicans with the backbone they need to reassert institutional power over trade policy. If not, where will free traders find a political home?
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