The Case for Free Trade Is as Strong as Ever
Value in question.
It wasn't so long ago that America's commitment to free trade could be taken for granted. Now it's in doubt -- even though support for open markets remains vital for the nation's future prosperity, and the world's.
In this presidential election year, the mood is decidedly anti-trade. Democratic front-runner Hillary Clinton, under pressure from the left of her party, refuses to back the Trans-Pacific Partnership, a new trade pact she once called the gold standard for such agreements. Donald Trump, her Republican counterpart, is more direct: He advocates punitive tariffs and all-out trade war.
- Related: The New Old Economics of Trade
The idea that import barriers will strengthen the economy is brainless populism -- and one might expect economists to say so. If only. Many experts say, or seem to say, that it's all very complicated, that the benefits of free trade have often been overstated, and even that it might not matter too much if the U.S. retreated from the global economy.
Economists don't want to be thought simple-minded -- or, worse, market-fundamentalist. But the result is that some aggressively dumb economics is arousing only the most feeble pushback. The case for free trade, correctly understood, is as powerful as ever. It deserves much stronger support.
The basic case is robust, and the economic record of the world's richest economies -- including that of the U.S. -- attests to it: Free trade makes economies more productive by forcing producers to innovate, specialize and compete.
There are exceptions to the argument that openness promotes growth, mostly concerning the need to shelter infant industries in developing economies. It's also true that more trade involves winners and losers, and that gains for the overall economy aren't much use to the people who lose their jobs because of cheap imports. You could say the same of people who lose their jobs because of automation. Yet presidential candidates don't oppose technology because it creates losers as well as winners. Perhaps that's next.
Recent research suggests that the short-term losses from trade liberalization are bigger and more protracted than previous work showed. This careful, detailed work underlines the need to help the workers harmed by trade. Yet these new studies don't show that short-term adjustment costs entirely outweigh the short-term gains -- much less contradict the essential point that trade, over time, gives the economy as a whole a substantial boost.
Forgive the market fundamentalism, but a policy that delivers small net gains in the short term and substantial net gains in the long term still seems like a good idea.
Settling for the status quo, by failing to extend liberalization through TPP or other agreements, would be one thing. An outright retreat from liberal trade would be far worse -- and a retreat as dramatic as Trump's proposal would be disastrous. Imposing high tariffs (and coping with the barriers raised by other countries in retaliation) would involve huge disruptions in the short term, for both suppliers and workers. Later would come the high long-term costs traditionally associated with trade barriers.
Advocates of liberal trade need to more fully acknowledge the dislocations that trade creates -- and say how they intend to address them. Workers harmed by free trade need better ways of adjusting to it -- as do those threatened by domestic competition or new technology.
The smart case for free trade is the best answer to the new protectionism. But you don't need to be all that smart to see that letting TPP fail, let alone declaring trade war, is no antidote to Americans' economic anxieties.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.