The Trade Debate That Wasn’t
Strawberries in February. Asparagus in November. Bananas year round. Few industries have been more revolutionized by global trade than groceries. When it comes to food and the way it travels from the field to your table, foreign trade has been at the center of this progress. Fresh fruits and vegetables are affordably available in stores across the United States thanks to trade, alongside tens of products made overseas.
If this story of trade is unfamiliar to you, that is completely understandable. Anyone who watched the first presidential debate heard a very different narrative of free trade from both candidates. Transcending the heated exchanges between Donald Trump and Hillary Clinton was a general agreement that foreign trade has hurt the United States, and both promised that if elected president they would oppose new trade deals.
“We have to renegotiate our trade deals…they’re taking our jobs,” asserted Donald Trump, who went on to describe manufacturing downturns of 50% in the United States, an outcome he attributed to NAFTA, or the North American Free Trade Agreement. Hillary Clinton also distanced herself from trade and reiterated her opposition to the Trans-Pacific Partnership, one of the most significant trade deals the United States is currently negotiating.
The one-sided debate on trade this year should be extremely concerning. As Hillary Clinton correctly noted during the debate, the United States only accounts for 5% of the world’s population. For a U.S. business to succeed in today’s global marketplace, it needs easy access to the other 95% of global consumers. Trade supports 11.5 million American jobs, or one in every five, and those jobs pay 13-18% more than non-export-supported jobs. All told, the United States sold $2.26 trillion in goods and services overseas in 2015.
Not the story of trade that you are hearing from the candidates this year.
There should be no dispute that foreign trade produces both winners and losers. As economists Paul Samuelson and Wolfgang Stolper postulated in the theorem that now bears their name, the real prices of a country’s scarce factors fall relative to others due to trade, while a country’s abundant factors see their real prices increase. In the United States, that means that unskilled labor it hurt by trade, while highly educated employees benefit. Telling people that foreign trade provides them with cheaper goods is unhelpful if they lost their jobs or had their paychecks cut due to outsourcing.
But rejecting free trade simply because it hurts certain workers while broadly expanding the economy is the wrong response. Improving job retraining and relocation assistance for workers displaced by trade, enhancing support for U.S. students, and providing incentives to high-tech and service-oriented U.S. firms can reduce the costs to those hurt by trade. Further, strengthening global environmental, labor, and workplace safety requirements helps level the playing field in favor of U.S. workers.
By spreading prosperity and creating jobs around the world, trade turns former enemies into friends and lowers global tensions. Stanford economists Matthew Jackson and Stephen Nei, in one of the most in-depth studies on the relationship between trade and armed conflict, found that doing business overseas greatly reduces the risk of war. Trade relies on stability—as more nations’ economies become fully integrated in the global economy, the incentive to peacefully resolve tensions increases. The countries that are seen as the biggest risks to global stability—North Korea, Iran, Somalia—have long been cut off from the international economy, and have little to lose in terms of exports if a war breaks out.
No discussion of trade would be complete without also acknowledging the role that it plays in global development by reducing disease, malnutrition, and illiteracy. As developing nations find new markets for their products and their workers earn higher wages, they are better able to prevent crises that require foreign assistance and intervention. U.S. farmers and pharmaceutical companies are on the forefront of battles previously fought only with charity and aid.
This year, the United States is at a critical juncture when it comes to global trade. Critics in both presidential campaigns are calling for new restrictions and an economy that is walled off from the rest of the world. Positions like that may win votes, but they ignore the realities of the global marketplace. The truth is that the success of the U.S. economy and American businesses depends on exports. Moreover, anyone who wishes to enjoy fresh salad during the winter would find themselves hungry in a world without trade.