Will No One Take On the Trade Cowards?

By Jennifer Rubin

Friday, April 22, 2016

Among the many discouraging aspects of the 2016 presidential race is the remaining candidates’ unanimous support for trade protectionism. There are those who know better but choose to pander to the crowd. There are those who are ignorant and insist on long-discredited arguments. It’s worse than climate-change denial, and it is bipartisan.

Alan S. Blinder, former vice chairman of the Federal Reserve and now a professor at Princeton, recites — in simple terms that even Donald Trump could grasp — some basic facts about trade. These are not opinions or matter of ideology; they are truisms about which economists regardless of ideological bent can agree. Blinder recaps: Capitalism, not trade, is responsible for job-churn (“Every month roughly five million new jobs are created in the U.S. and almost that many are destroyed, leaving a small net increment”); trade is a counterweight to wage stagnation (“It’s not mainly about creating or destroying jobs. It’s about using labor more efficiently, which is one key to higher wages”); and trade imbalances are both inevitable for the nation with a reserve currency and unimportant. As to the latter, he explains:

A trade deficit means that foreigners send us more goods and services than we send them. To balance the books, they get our IOUs, which means they wind up holding paper—U.S. Treasury bills, corporate bonds or other private debt instruments. That doesn’t sound so terrible for us, does it?

One exceptional country—the U.S.—is the source of the world’s major international reserve currency, the U.S. dollar. Since ever-expanding world commerce requires ever more dollars, the U.S. must run trade deficits regularly. That’s sometimes called our “exorbitant privilege,” since we get to import more than we export.

The upshot is simple: “America’s chronic trade deficits stem from the dollar’s international role and from Americans’ decisions not to save much, not from trade deals.” As for the policy implications, “Trade deficits are not a major cause of either job losses or job gains. But some people do lose their jobs from shifting trade patterns; and the government should do more to help them. Importantly, trade makes American workers more productive and, presumably, better paid.”

What is even more clear is that protectionism does not work. History teaches us that it almost always provokes political conflict and economic malaise. The “cure” for what amounts to a psychosomatic illness is a prescription for recession and international conflict.

Given truth serum, Sen. Ted Cruz (R-Tex.) and Hillary Clinton (who used to make many of the above arguments herself) would dispute none of this. They, however, are unwilling to take on the mob, which has been whipped into hysteria and has become convinced — by people like Trump and Sen. Bernie Sanders (I-Vt.) — that trade (with China, specifically) is responsible for economic misery. (On the right, immigration gets paired with trade to create a two-headed bogeyman for the economically illiterate.)

Because the anti-trade delusion is bipartisan, neither side will point out that the other is acting irrationally and irresponsibly. The political press, never much interested in economic policy, does not challenge politicians. Moreover, it does not make for interesting TV when both sides agree, even if they agree on economic falsehoods. And when the press breathlessly reports that the trade deficit has widened, the public is led to believe that this is both significant and bad. The defenders of free trade who might counteract the anti-trade hooey — businesses who understand how this works, academics and dutiful civil servants (in the Office of the U.S. Trade Representative, for example) — are not popular characters these days.

The rub comes, as it has for President Obama, when it is time to conclude trade deals that are overwhelmingly in our best interest, both diplomatically and economically. There is zero popular mandate for such deals, and the opponents have a ready-made audience willing to pelt their representatives if they vote to “ship jobs overseas,” or something like that. The only solution then is to lard up these deals with pork and accommodations to Big Labor. These, in turn, give fiscal conservatives reason to oppose the measures. The result is rotten policy and unnecessary political conflict.

Unless and until we have some brave souls willing to make the case to the voters and to convince them that their anti-trade hysteria is akin to anti-vaccination lunacy, it will become increasingly difficult to conclude pro-growth deals. Ironically, trade deals are the one thing that does not cost anything (aside from the pork included in order to grease the skids for the deals), increases our prosperity and contributes to a more prosperous and peaceful world. More of them, not fewer, would “Make America Great” and the world better off.