Don’t be Afraid of a Trade

by Valeria Vallejo

Over the years, the topic of free trade has been something that economists are wrapped up about due to the constant dismissal of their expertise. When it comes to the topic of trade, it seems as if the majority of the United States, from politicians to the public, are against the economic experts who have been studying the trends for decades.

So why is this? It seems that with most areas, like the medical field, tech industry, or legal industry, that people trust the experts in those areas more than politicians or the public, yet it feels as if almost the opposite is true when it comes to the financial industry. Though economists are against the idea of protectionism, meaning the “policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors,” politicians and industries seem to advocate for it and most Americans agree with it.

Trade War

During Former President Trump’s time in office, he constantly emphasized the importance of protectionism, especially in terms of the United States’ trade deficit with China. It started with his claim was that China had purposefully manipulated their currency to create an imbalance in their trade with the U.S. and stated that it was “the greatest theft in the history of the world” in a 2016 rally in Indiana. As he progressed with this issue, a trade war emerged with the United States’ plans to impose tariffs on more than $550 billion of Chinese imports, resulting in retaliation from China with their own tariffs on American exports.

This then turned into a big trade war with China, which ultimately caused a lot of strain in the economy. Eventually, Trump tariff’s caused a worry about high costs of several items in the tech industry, clothing industry, and others to the point where the tariffs had to be delayed to prevent insane costs in popular products for the Christmas season in 2019.

Myths About the Term “Trade Deficit”

It seems as if much of the distaste towards being in a high trade deficit is rooted in the term itself. Just hearing that the United States is in a trade deficit sounds like a bad thing since when we usually hear about the word deficit, we think of losing or failing at something. However, the term trade deficit simply means that a country is importing more than it exports. On the surface level, it seems like by having a high trade deficit, a country is in debt, however many wealthy countries have high trade deficits, but can then focus their economies in other industries like travel and tourism since they don’t have to worry as much about keeping up with export demands.

In fact, 6 out of the top 10 countries in this list of the Top 20 Countries with the Largest Deficit are also in the list of the Top Ten Countries by Nominal GDP.

According to the article “The Myth and the Reality of Manufacturing in America” by Hicks and Srikant, “almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth” meaning that things like better technological advances have more to do with reduced need for people working in factories or fields.

Despite this, Americans seem to be more against the idea of free trade as opposed to protecting workers from being replaced by machines. In an article on Harvard Political Review, Jay Garg recounts that:

A poll conducted after the 2016 election found that 77% of Americans felt it was very or somewhat important to establish tariffs to discourage companies from relocating to other countries. And yet, on May 3, 2018, over 1,100 economists of all political ideologies signed an open letter to President Trump, warning against the imposition of trade tariffs.

It makes sense that many Americans feel this way since it’s easy to see the good effects of protectionism on the surface level and also easy to see the bad effects of free trade. For example, many Americans will point to the fact that companies are constantly outsourcing due to the ease of doing so with free trade, however it’s hard to see that the same free trade agreement allows Americans to save money on groceries.

Why Free Trade?

While it may seem that free trade only benefits manufacturers, it actually reduces the cost of items in the United States to the average consumer. If the U.S. has good trading relations with a country and little to no tariffs, then American consumers can expect low prices for goods that use those imports. However, when tariffs get high for certain imports, then the supply for those imports decreases, resulting in industries having to find ways to keep up with the cost of manufacturing with the higher-priced goods. This can be done through finding cheaper alternatives or even laying off workers in those industries. The latter ultimately defeats the purpose of Americans being for protectionism, so why are the majority of Americans, politicians, and industries afraid of free trade?

Protection of Protectionism

The idea of protectionism is, largely, seen as positive. Even the name itself sounds very comforting, as if we’re protecting something in our country. However American workers are not the ones being protected here.

During the trade war with China, one of the major ideas was that putting a tariff on steel would allow for the U.S. steel companies to begin to thrive with new factories, jobs, and independence from another country in an industry that would be a huge supplier in wartime. Though it seems like it was all for American citizens, the huge winners out of it would be the U.S. steel industry. The idea of putting such a high tariff on steel was so important to them that lobbying from the steel production industry went up 31% after word of the possibility of these tariffs. In total the U.S. steel industry has spent more than 180 million on lobbying to impose massive steel tariffs for their own benefit in the past decade. With this much money being spent in support, it’s no wonder the many people, from politicians to the public, seem to be for the idea of protectionism despite what the experts say.

Due to the popularity of this idea, it could also make it harder for politicians to be truthful with what they think about free trade versus protectionism. Politicians that are elected by popularity with the public may find it harder to publicly say that they dislike protectionism in fear that it may cost them their positions.

Conclusion

In conclusion, the idea that protectionism is what is best for the United States and its citizens is false. The negative effects, such as job reduction in certain industries gets replaced with new jobs in industries that can only bloom due to free trade. Overall, good relations with other countries allow the United States to maintain a healthy economy and puts the country in a good light of consumers around the world who will then see U.S. products as being good options in a competitive market. By limiting Americans products in such a market and creating tense relations by imposing tariffs with the world, we limit a world of consumers as well as the diversity of products for Americans.

References

“34.1 Protectionism: An Indirect Subsidy from Consumers to Producers.” Principles of Economics, https://opentextbc.ca/principlesofeconomics/chapter/34-1-protectionism-an-indirect-subsidy-from-consumers-to-producers/. Accessed 14 Nov. 2021.

Hass, Ryan, and Abraham Denmark. “More Pain than Gain: How the US-China Trade War Hurt America.” Brookings, Brookings, 25 Aug. 2020, https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-gain-how-the-us-china-trade-war-hurt-america/.

Hicks, Michael J, and Srikant Devaraj. “The Myth and the Reality of Manufacturing in America.” Center for Business and Economic Research — Ball State University, Apr. 2017, https://conexus.cberdata.org/files/MfgReality.pdf?_ga=1.191587438.534301346.1471122516.

Kelly, Matthew. “Tariffs Spark First-Quarter Spike in Steel Lobbying.” OpenSecrets News, 26 Apr. 2018, https://www.opensecrets.org/news/2018/04/quarter-1-lobbying-2018-report/.

Lee, Tom. “From the Trump to Biden Administration: Protectionism and Trade Enforcement Actions.” AAF, 15 Sept. 2021, https://www.americanactionforum.org/insight/from-the-trump-to-biden-administration-protectionism-and-trade-enforcement-actions/.

Long, Heather. “Analysis | Trump Finally Acknowledges His Tariffs Could Hit Consumers.” The Washington Post, WP Company, 13 Aug. 2019, https://www.washingtonpost.com/business/2019/08/13/trump-finally-acknowledges-his-tariffs-could-hit-consumers/.

“Trump Accuses China of ‘Raping’ Us with Unfair Trade Policy.” BBC News, BBC, 2 May 2016, https://www.bbc.com/news/election-us-2016-36185012.