Making the Case for Trade
Reagan’s ‘protectionism is destructionism’ message was true—and it would be derided in the 2016 race.
By Morton Kondracke and Matthew J. Slaughter
Divided though the four leading presidential candidates are on so many topics, united they stand on one: the assertion that trade hurts America.
All four oppose the U.S. ratifying the Trans-Pacific Partnership. All four demonize trade the same way. Donald Trump blasts that “foreigners are killing us on trade,” while Bernie Sanders inveighs against “disastrous trade agreements written by corporate America.” Ted Cruz laments that “we’re getting killed in international trade right now,” and after flipping her position on the TPP and other trade agreements, Hillary Clinton now promises that America will never again “be at the mercy of what any country is going to do to take advantage of our markets.”
Where is the leader with the courage to tell the truth? To say that trade made this nation great, and that trade barriers will destroy far more jobs than they can ever “save.” To explain how trade translates into prosperity and new jobs, and how the disruptions inevitable in a trading economy can be managed for the benefit of those who need help.
All we are hearing now are antitrade anecdotes and outright misinformation. Someone needs to reclaim the story line and spell out the facts.
Individual consumers and families benefit when they enjoy a wider variety of products at lower prices. America’s exporters and importers are among the country’s most dynamic companies, paying their workers about 15%-20% more than workers earn elsewhere in the economy.
The overall gains are large. Trade and related activities—spurred by accords such as the North American Free Trade Agreement, or Nafta, have boosted annual U.S. income today by about 10 percentage points of GDP relative to what it would have been otherwise. This translates into an aggregate gain of about $1.8 trillion in 2015—thousands of dollars per U.S. household every year.
Future trade agreements will bring more gains. A 2016 analysis by Peter A. Petri and Michael G. Plummer estimates that the TPP—which will eliminate more than 18,000 tariffs that other countries today impose on U.S. exports—will boost U.S. national income by about $130 billion annually. Part of this gain will be due to the higher average wages Americans earn as a result of more trade.
The second important pro-trade narrative is that creative destruction—the movement of people and capital from weaker businesses to stronger ones and new opportunities—is how many of the gains from trade arise. And because trade is only one of the forces driving this continual churn, the scale of creative destruction is vast. In December, for example, America’s creation of almost 300,000 payroll jobs was the net outcome of 5.4 million new jobs created and 5.1 million old jobs destroyed.
Technology innovation and other drivers of long-run economic prosperity also entail more gains to “winners” than costs to “losers.”
This points to the third key theme: The way to support those affected by trade is not with tariffs that will destroy the jobs of other Americans that depend on trade. The solution is to drop trade barriers to maximize trade’s gains—and then design well-targeted supports for workers and communities that need help.
Whatever field they work in, many American voters feel anxious about their jobs and their paychecks. Policies designed in a bygone age—when there was less economic volatility—aren’t enough to help them cope with ever-shifting labor-market pressures. We need to build a broader, more-responsive safety net to assist workers in transition regardless of the reason. For instance, unemployment insurance and trade-adjustment assistance should become part of an integrated program that offers a menu of options to all displaced workers.
To help offset trade’s pretax pressures on the wages of certain workers, the earned-income tax credit could be expanded—or the Federal Insurance Contributions Act (“payroll”) tax could raise its cap to allow lower rates on lower earners while remaining revenue-neutral. In the longer term, education of all kinds—vocational and technical, apprenticeships, and ongoing retraining—is critical to prepare more workers to gain from trade.
For generations, American presidents of both parties have spoken about the benefits of trade. “Economic isolation and political leadership are wholly incompatible,” warned John Kennedy. “A creative, competitive America is the answer to a changing world,” said Ronald Reagan. “We should always remember: protectionism is destructionism.”
Today, when the volume of U.S. exports has contracted amid a slowing and more-uncertain world economy, such voices have fallen silent. A global trade war come January 2017—which is what the leading candidates mentioned above are either inviting or bound to create—could throw more people out of work in America than most can imagine. Who will step up to tell the compelling trade story that America needs to hear?
Mr. Kondracke is the retired executive editor of Roll Call and co-author of “ Jack Kemp: The Bleeding Heart Conservative Who Changed America” (Sentinel, 2015). Mr. Slaughter is dean of the Tuck School of Business at Dartmouth.