Today, many Americans are being duped by demagogues wielding delusional economic policies. We all witnessed this unfold when a self-proclaimed socialist nearly won a major party’s nomination for president. (My reasoned condemnation of socialism can be left unsaid here because anyone with a pulse and a sixth grade history class under their belt realizes the destruction caused by such an economic school of “thought”). However, socialism is not the only delusion that people are falling for. Many Americans, unfortunately, are also buying into the protectionist delusion.
The “protectionist delusion”, as I call it, is the objectively false notion that restricting free trade through placing tariffs on imports, for example, is in the economic interest of this, or almost any, country. Protectionists revile the North American Free Trade Agreement and the pending Trans-Pacific Partnership. The only problem for these theorists is that facts are not on their side. Since NAFTA went into effect, the American labor market has seen a net increase of 26 million jobs. North America as a whole has experienced a 23% jump in employment. Additionally, the entire North American economy has more than doubled since NAFTA was initiated. Experts estimate that the TPP would yield similar, beneficial results.
The statistics favor free trade, yet many Americans do not. This is because trade is often perceived as a zero-sum game, with one candidate in particular often exclaiming that we are “losing” in trade. Such a portrayal of international trade is not only disingenuous, but also fundamentally contradictory to the concept of trade. Inherent to the practice of international trade is mutual gain; it is not a zero-sum, I win-you lose, game.
International trade allows a country to export a good for which its opportunity cost of production is low relative to other countries and import a good for which its opportunity cost of production is high relative to other countries. While this a simplified explanation of international trade, it captures the essence of commerce. Nations can specialize in exporting goods for which they will make a profit and importing goods for which solely domestic production would make the price of those goods prohibitively, or unnecessarily, high. This means that when two countries trade with one another, they are both participating in order to increase the well-being of their own nation; they both benefit from the transaction. Countries that engage in trade are not opponents; they are partners.
Free trade is a vital component of true free markets. Trade permits increased competition between businesses in different nations, resulting in lower prices and higher quality products. It is undeniable that free trade inevitably leads to the loss of jobs in some industries. However, economists are in near universal agreement that the overall gain from free trade far outweighs the losses. Because of free trade, both consumer purchasing power and company profits increase, allowing for increased investment, added jobs, and dramatic economic growth.
The benefits of free trade even extend to the poorest of countries. It has been shown that free trade leads to reduced poverty and increased quality of life throughout the world. Poorer countries are able to catch up to richer countries through free trade. The Federal Reserve Bank of Minneapolis published an article saying that “In the three decades between 1981 and 2010, the rate of extreme poverty in the developing world (subsisting on less than $1.25 per day) has gone down from more than one out of every two citizens to roughly one out of every five, all while the population of the developing world increased by 59 percent.” To give perspective on just how significant this is, the article noted that “This reduction in extreme poverty represents the single greatest decrease in material human deprivation in history.” Economists and experts have credited this success in reducing poverty in the developing world to the immense increase in international trade in the past thirty or so years.
The merits of free trade are not solely economic either. Studies show that there is a negative correlation between free trade and international conflict, meaning the more openly a country trades, the fewer wars it is involved in. Free trade makes nations more economically interdependent, making it extra costly to fight a war. Thus, free trade creates a significant and legitimate disincentive to military engagement. Promoting free trade is not only great economic policy, it is great foreign policy.
We are currently living in an extremely globalized economy, and, despite what some politicians may tell you, that is not a bad thing. There is no reason why the United States, or essentially any nation, should wind back the clock and return to protectionist policies. If we want to keep reducing global poverty, growing national economies, and encouraging amicable relations between countries, we must uphold NAFTA, remain in the WTO, and ratify the TPP. The candidates in this election will claim otherwise, but the protectionist policies that they propose are, quite frankly, delusional. Free trade is great. It is great for America, and it is great for the world.