Friday, July 08, 2016
Protectionism Will Not Make
America Great
Pierre-Guy Veer
At the end of June, presumptive Republican nominee Donald Trump made a
fiery speech about trade in Pittsburgh. Using many of Bernie Sanders’
talking
points on the subject, Trump said, among others, that he would hold
China accountable for the manipulation of its currency and unfair trade
practices, withdraw from the Trans-Pacific Partnership, and renegotiate
the North American Free Trade Agreement with Mexico and Canada.
Trade vs. Trade Treaties
There is some wisdom on Trump’s part about NAFTA.
This agreement would deserve the label “bureaucratic agreement on trade”
rather than “free trade agreement.”
For example,
Annex 313 states that Bourbon and Tennessee Whiskey can only be
called as such (and be sold) if they are produced in Tennessee “in
accordance with the laws and regulations of the United States governing
the manufacture of Bourbon Whiskey and Tennessee Whiskey.”
The same rule applies to Canadian Whisky in Canada and Tequila and Mezcal
in Mexico. Annex 703.2.A.4, on its side, contains a truckload of products
which are exempted from free trade, including Canada’s
milk supply management which may cost the
average family $267 a year.
Trump is also right about being hesitant to support the TPP. What has
leaked out of it shows that the agreement has more to do about
protecting intellectual property rather than genuine trade
liberalization. Such protection would
stifle innovation and slow economic growth – just imagine if there
had been a patent on the wheel or iron casting when it was first
invented.
Fairness is Buying What You Want from
Wherever
However, Donald Trump is wrong to advocate for
“fair” trade. In his
platform he calls for a level playing field in order to have a
“fairer” trading relationship with China, known for its heavy top-down
approach on
foreign businesses.
This amounts to protectionism that could set off a very costly trade war.
American consumers will pay the price – a form of tax. It could set off a
deep recession. When you consider the stakes here, you see that all of
Trump’s valid complaints about trade treaties are designed to bring about
something that is even worse.
If, however, Trump’s goal is really to “make America great again,” then
he should not be caring about China’s trade practices, but embracing
unilateral free trade.
Of course there would be unavoidable, short-term pain with job losses in
industries that cannot compete with China and other industries. The steel
industry, for example, would not be protected by the recently enabled
266-percent tariff imposed on Chinese steel and would shed many
jobs.
However, people using steel (for construction, manufacturing, etc.) would
save so much money by being able to import cheaper steel. This surplus
money will not evaporate; it will return in the economy in the form of
savings, job creation, and economic growth.
This is not trade theory: unilateral free trade has successfully
happened. Famous French liberal Frédéric Bastiat has abundantly talked
about England turning to
unilateral free trade and how it helped the country become even
richer. It even
“gave them bread”
during a bad harvest 1847 thanks to wheat imports.
By walking down this “bold path,” to quote minister Peel who enacted free
trade, America would truly be great. Government would stop subsidizing
agriculture in every single form, thereby not only
improving the quality of the water supply, but also reversing the
contentious debate about undocumented Mexicans whose livelihood was
destroyed by
U.S. corn subsidies. Capital resources would be allocated in a more
efficient way according to supply and demand – it might still be farming,
but it could become manufacturing, mining, or even services – and save an
average of $6.1 billion per year until 2019.
Trade liberalization, combined with Trump’s
promises to lower business income tax to 15 percent and tackle the
deficit and debt, would truly “make America great again.” Because after
the unavoidable short-term pain of adjusting to new incentives, Americans
will get back to work and better supply the world’s demand on their
own.
https://fee.org/articles/protectionism-will-not-make-america-great/
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