It's time for tough talk on trade

For all the heat and furor of the presidential campaign season, the debate in both parties has revealed a substantive shift in the country’s thinking about trade policy.

As recently as a few of years ago, the tension in the debate was between protectionists on the left and more laissez-faire free traders on the right. Now, it is between a vast and politically motley array of grassroots protesters and traditional policy elites in Washington. Political candidates out on the campaign hustings are giving voice to a deep-seated angst among many voters, while their colleagues inside the Capital Beltway continue to hew closely to the established way of thinking about trade – namely, that it is generally to the good.

But while the contours of the trade debate have shifted from left-right to outside-in, attempts to portray it as a Manichean choice between unflinching support and stubborn opposition remains as flawed as ever. It is time for Washington insiders to stop their pious defense of any and all trade, even when US trading partners slyly adopt mercantilist policies in a one-sided effort to skew markets for their own advantage. And it is time for outsiders to accept that globalization is here to stay. Both sides need to start advocating for a new approach to trade policy that welds together vigorous enforcement of global trade rules and a comprehensive national competitiveness strategy. 

Unfortunately, there is little evidence that many Washington insiders are going to budge from their long-held positions. They generally remain die-hard defenders of free-trade ideology and repeat a narrative that trade always benefits both importers and exporters, that it had nothing to do with the US manufacturing sector losing a third of its jobs in the 2000s, and that the US economy doesn’t really “compete” with other nations, anyway. They keep repeating these articles of faith in an attempt to prevent a protectionist tide from rising too high. Well, guess what? It’s not working.  

The reality is that trade and globalization are in fact good for America, but only if the country’s trading partners play by the rules of the global trading system by refraining from mercantilist tricks, such as manipulating their currencies, forcing companies to transfer ownership of their innovative technologies as the price of market access, massively subsidizing their own exporters, and outright stealing intellectual property instead of innovating on their own.

This system is not what President John F. Kennedy envisioned when he led the “Kennedy Round” of trade liberalization talks under the General Agreement on Tariffs and Trade. It was not what President Ronald Regan envisioned when he pressed the Japanese to invest in the United States or when he brokered the Plaza Accord to lower the value of the dollar against other major currencies.

But since then, Washington policy elites have become ostrich-like, defending a conspicuously imperfect trading system as if it were the best of all possible worlds and rolling their eyes at suggestion there might be a problem. So when presidential candidates give voice to concerns they hear outside Washington, insiders react by circling the wagons. Caroline Freund, a senior fellow at the venerable Peterson Institute for International Economics, argues that Donald Trump’s call to impose tariffs on Chinese goods would “tremendously” hurt the poor by jacking up the prices on many of the products they use most frequently. Brookings Institution scholar Thomas Write writes that, “Under [a Trump] presidency, the open global economy would slam shut.” Washington Post columnist Robert Samuelson writes, “the [Trump] campaign’s misleading rhetoric is dangerous if it leads the next president to start a trade war.” 

There arguments may be true, but instead of taking seriously the American public’s legitimate concerns, Washington insiders often seem to shrug off what they regard as the ravings of simpletons. American Enterprise Institute scholar Mark Perry writes, “The almost daily proposals to erect trade barriers with double-digit tariffs and the constant misinformed lamenting about America’s trade deficit have brought ‘ignorant nonsense about economics’ to new levels.” Greg Mankiw, a pillar of inside-Washington economic thought, writes, “If economists are so sure about the benefits of free trade, why are the public and their elected representatives often skeptical? ... Instead of being merely ignorant, voters hold on to mistaken beliefs.” He goes on to muse, “If Congress were to take an exam in Economics 101, would it pass?”  

So it is time to tell it like it really is: By letting the US economy specialize in higher value-added goods and services, trade and globalization can be good for the United States. On net, trade doesn’t kill jobs in the intermediate term – but neither does it add them. What trade can do, if all goes well, is shift employment toward better, higher-paying jobs. But that won’t happen if America is forced to compete against nations that are giving themselves unfair advantages in the form of massive export subsidies, artificially low currencies, rigged markets, misappropriated technologies, and the like. When those things happen, trade often hurts the US economy.

Nor will globalization help the United States if policymakers don’t put in place a robust national competitiveness strategy, including a more competitive tax code for companies engaged in global competition, more funding for research and development and advanced manufacturing technologies, and improved skill development.

If we do both of these things – reduce foreign mercantilism and develop a domestic competitiveness strategy – then trade will be an unalloyed good for America and more of it will be even better. That doesn’t mean that some individuals and regions won’t be hurt. They will, and we should move forward with trade and globalization anyway, albeit putting in place better policies to help those hurt, including a better unemployment insurance system and wage insurance.  

What this overheated election season needs most is for grownups to start talking to each other like grownups. Washington insiders need to stop reciting the Econ 101 fairy tale, and the voting public needs to accept that it would be self-defeating not to integrate the country into global markets, despite the dislocations it might cause. To reach such an understanding, the insiders will have to go first, because the angry public doesn’t trust them, with good reason. Insiders must start by raising their voices in vigorous opposition to mercantilism and in support of serious competitiveness strategy. Only then are we likely to see the country turn away from the appealing siren song of protectionism.

Robert D. Atkinson is the founder and president of the Information Technology and Innovation Foundation, a think tank focusing on the intersection of technological innovation and public policy. Follow him on Twitter @RobAtkinsonITIF.