Donald Trump and Bernie Sanders Are Delusional on Trade Policy
We import so many parts—and parts of parts—that tariffs and protectionism will only kill jobs and hike prices.
In this campaign season of populist anger and demagoguery, bad ideas are bubbling to the surface like marsh gas. Among the worst is protectionism, which would wreak havoc on a U.S. economy that’s finally picking up steam.
Both Donald Trump and Bernie Sanders have seized on trade as a convenient scapegoat for the nation’s economic woes. There’s deep irony here. The popular frustrations on which they feed stem mainly from the productivity and wage slump America has experienced since 2000. Yet their proposed fix—shredding international treaties and walling off the U.S. economy—is a textbook formula for economic stagnation.
It’s a perfect negative feedback loop. And it won’t be the “one percent” who suffer if the populists get their way; it will be U.S. companies with global supply chains and millions of middle-class American workers and consumers.
Take Trump’s chest-thumping threats to slap tariffs of 45 percent and 35 percent on imports from China and Mexico, respectively. These crushing duties would immediately jack up production costs for U.S. manufacturers, such as Ford, that source engines and parts from these countries, seriously undercutting their ability to compete globally.
The Trump Tariff also would be in essence a giant tax hike on U.S. consumers, amounting to $250 billion by one estimate. At current import levels, a 45 percent duty on imports from China would, for example, translate into a tax of $18 billion on cellphones, $16 billion on laptops, and $15 billion on clothing. Similarly, Sanders’s commitment to “reversing” tariff-cutting U.S. trade agreements and normal trade relations with China would lead to higher duties on a wide range of imports from 21 countries—including America’s top three trading partners—and higher costs for working Americans.
China and Mexico would surely retaliate by raising barriers to U.S. exports. China—America’s number three export destination—could, for example, impose stiff duties on such leading U.S. exports as aircraft, autos, electronics, soybeans, and corn, as well as new limits on high-value U.S. services. The tit for tat would lead to shutdowns and layoffs in all three countries, and could tip an already shaky global economy into recession.
Launching trade wars to “protect” the middle class makes sense only if you believe, as Trump does, that global commerce is a zero sum game. No doubt that reflects his background in real estate, where the game is to extract the highest rents from the finite resource of property, not to create new wealth. Evidently, Trump’s vaunted Ivy League education failed to acquaint him with the elementary concept of comparative advantage, by which countries rich and poor can turn trade to their mutual benefit.
To Trump, one country’s gain is necessarily another’s loss, and he sees America as the pigeon at the table of high-stakes international trade negotiations: “China is killing us, Japan is killing us, Vietnam… [is] killing us.” To Sanders, trade is a conspiracy by Wall Street and corporations to enrich themselves at the expense of working Americans. He calls for “reversing” current trade agreements and normal trade relations with China, which would entail abandoning the lower tariffs and market-opening rules at the core of these arrangements.
Both Trump and Sanders rail against President Obama’s proposed Trans-Pacific Partnership (TPP), a pact among 12 Asia-Pacific nations that account for about 40 percent of the global economy. By 2030, Asia will have some 3.2 billion middle-class consumers—ten times the projected size of North America’s middle class. The TPP would provide a critical foothold in this fast-growing market that wants to buy what America has to sell. It would eliminate thousands of tariffs and an array of other barriers on competitive U.S. exports, including high-value manufactured goods, farm products, software, and sophisticated services. These growing exports would support good, higher-paying jobs. At the same time, the TPP would help “democratize” U.S. trade by making it easier for small, digitally enabled businesses to share in trade’s significant benefits.
Populists claim that protectionist policies are, nevertheless, required to support American manufacturing and jobs. It’s true that trade protections would benefit some U.S. manufacturers and workers—including less efficient businesses that can’t compete without restrictive rules. But they would harm many others. Studies show that, while tariffs and quotas can promote production and jobs in targeted sectors, they usually do so at an inordinate cost to American consumers and often result in a net loss of jobs in the American economy. And, because over half of U.S. imports are “intermediate goods” used by American manufacturers and workers to make finished products, trade restrictions would make these U.S. products more expensive and less competitive both domestically and abroad.
Among economists, there is widespread agreement that open trade is a significant net plus for the U.S. economy, providing broadly shared benefits for consumers, workers, and businesses. Trade’s negative impacts, on the other hand, tend to be concentrated, harming specific sectors and their workers. Protectionist policies like those offered by Trump and Sanders would effectively turn this dynamic on its head—benefitting the few, while harming the many.
Smart, high-standard trade agreements, on the other hand, can—as part of a broader, progressive pro-growth strategy—help spur the economic investment and innovation we need to rebuild the middle class and restore shared prosperity.
While many Americans are angry, most recognize the futility of trying to unplug our economy from connected global markets. They understand that economic isolation and protectionism will hardly bring about a “revolution” or “make America great again.” Instead, by a significant majority, Americans see trade as an “opportunity.” It’s time to seize trade’s opportunity to stimulate economic growth that works for everyone.
Will Marshall is the president of the Progressive Policy Institute and Ed Gerwin is PPI’s senior fellow for Trade and Global Opportunity. PPI’s new report is entitled “Unleashing Innovation and Growth: A Progressive Alternative to Populism.”