Blog by Willett – Free Trade as Straw Man
The following was written by Brent Willett, executive director of the Cultivation Corridor, and featured in the Business Record’s Business Professionals’ Blogs. Read the original article at iowabiz.com.
It’s fashionable this election season to be anti-trade. That’s not just naive. That’s dangerous.
In a politico-cultural soup of an election season with an otherwise yawning lack of substance, a raging policy debate about the future of free trade has taken a strikingly prominent role. Not since the 1992 election, when the North American Free Trade Agreement [NAFTA] was being publicly litigated — thanks in large part to Ross Perot’s “giant sucking sound” description of the trade pact — has trade played so significant a role in public political discourse.
What distinguishes the Bush 41 – Clinton campaign and 2016, though, is the fact that the two major party candidates in 1992 were firmly pro-trade and today Hillary Clinton and Donald Trump are both — bewilderingly — proudly anti-trade.
This is not a minor phenomenon; the default position for virtually every serious contender for the office of the presidency in the modern era has been one of strong support for trade, and for good reason. Today the free trade agreements the U.S. has with 20 countries around the world account for nearly half of America’s exports.
Somehow, dispensing with $1.2 trillion, which is how much of the $2.3 trillion in total export activity the U.S. would lose out annually in export activity if those agreements disappeared today, has become a winner of a position in today’s theater of the absurd presidential contest.
All this candidate trade rancor and empty rhetoric is dangerous to the ability of any American community, region or state to compete for new investment, jobs and research from companies and institutions which are, whether our presidential candidates like it or not, complex and global, and that’s not going to change.
Take yourself back to your college microeconomics class. What is trade, and what does it do? Trade is, of course, the buying and selling of goods and services in a competitive marketplace. Trade permits specialization, which drives down input costs [plumbers plumb; programmers program] and serves as the framework for a competitive marketplace. In a competitive trade scenario, buyers — and sellers, crucially — benefit by way of respective surpluses. A ‘buyer surplus’ provides the buyer a net monetary benefit if she was able to purchase a product or service for less than she was prepared to pay, and a ‘seller surplus’ provides the seller a net monetary benefit if she was able to sell the product for more than she requires to continue operating.
All this is to say trade, at its most fundamental level, improves welfare; it’s a basic economic law. Trade creates wealth, for buyers and for sellers. That’s everyone. Ancient philosopher Hesiod ably put it: “Through work men grow rich in flocks and substance.”
Are there real and widening imbalances in wealth in this country? Absolutely. Is multinational trade the major cause of it? Probably not. On average workers in manufacturing in this country whose jobs depend on exports earn an average of 18 percent more than other workers. 11 million U.S. workers and at least 1 million farmers directly benefit at an earnings level thanks to this premium. In the U.S., multinational companies pay, on average, 25 percent more than the mean and are the source of more than 80 percent of private-sector R&D.
American farmers have increased their exports to free-trade partners to $56 billion, up 130 percent since 2003. Closer to home in Iowa, where one of every three acres of crops planted in our country is for export, $15 billion in Iowa goods were exported in 2014 by more than 3,400 Iowa companies, 81 percent of which were small companies. 108,000 Iowa jobs were supported by exports in 2014. In our great state, opposing trade simply does not comport with economic growth reality.
A short diversion to monetary policy
Despite how unprecedented it is to have two major party presidential candidates in the anti-trade column, there is at least one benefit to the raising of trade in the national discourse as an issue of concern: it’s placed a spotlight on global currency policy, traditionally an opaque, sleepy area of concern reserved for central bankers and economists.
While currency ‘manipulation’ by China is the fashionable villain in the narrative of a troublesome strong dollar, as Judy Shelton points out in her Aug. 10 Wall Street Journal commentary, currency imbalance today is about more than China.
The “shortcomings of our present international monetary system –volatility, persistent imbalances, currency mismatches — which testify to its dysfunction. Indeed, today’s hodgepodge of exchange-rate mechanisms is routinely described as a non-system,” she writes. Shelton argues that in today’s effectively lawless international monetary arena, nations are incentivized to establish isolationist exchange-rate policy, which contributes to a winner-take-all monetary infrastructure in which central banks play an outsized role, playing whack-a-mole in addressing rolling economic crises the world over.
“It is one thing to lose sales to a foreign competitor whose product delivers the best quality for the money,” Shelton writes. “[I]t’s another to lose sales as a consequence of an unforeseen exchange-rate slide that distorts the comparative prices of competing goods.”
Back to trade.
So what happened? How have we become a country in which our two major-party leaders can safely criticize free trade and the treaties and agreements which undergird it as ‘a mistake’ [Clinton, in 2008, on NAFTA] and ‘horrible’ [Trump, 2015, on the Trans Pacific Partnership deal]?
What’s happened, I guess, is Americans who are busy living their lives have begun, amidst so much political noise, to resignedly accept irresponsible trade-bashing rhetoric from political leaders as an accurate reflection of the cause of a general lack of net global economic growth in real income terms for many years. The reality, though, is that were it not for the free trade pacts which help orchestrate literally trillions of dollars of export income for U.S. companies, we would be in a much deeper, almost difficult to comprehend place of economic malaise today. Economic developers like me would have much less to do.
The good news
There is good news. Americans, by and large, don’t agree with the irresponsible anti-trade positions of the two major party candidates. AJuly NBC News/Wall Street Journal poll found that 55 percent of voters think free trade is good for America. Thirty-eight percent consider it damaging. An October 2015 poll by Gallup found that only 18 percent of Americans would support leaving NAFTA.
Aggregate polling on TPP suggests that more than three Americans support the deal for every one who opposes it. It is quite possible that on the other side of this election we’ll see the prominence of trade bashing become more marginalized in the public discourse, creating bandwidth to debate the real issues contributing to doggedly weak national growth. Economic development efforts across the country, including right here in the Cultivation Corridor, would only see benefit from such a pivot.
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