Politics & Policy

Donald Trump’s and Joseph Wharton’s Mistaken Protectionism

Container ships off Long Beach, Calif., 2012 (Jonathan Alcorn/Reuters)
Protectionism hurts middle- and low-income workers.

As an MBA student at the Wharton School of the University of Pennsylvania — Donald Trump’s alma mater — I often get questioned about how Trump is viewed on campus, if he was a good student, and how generous of an alumnus he is.

While I can only speak for myself, I have observed the general negative perception of Trump at Wharton that is commonplace in most of academia. Interestingly, however, although Trump has been an outspoken graduate of Wharton, lavishing praise on the quality of the business school throughout the Republican primaries, his policy platform does not adhere to the economic lessons of the macroeconomics curriculum, particularly when it comes to free trade.

It might surprise many, though, that many of Trump’s protectionist views are aligned with those of Joseph Wharton, the steel industrialist who funded the nation’s first business school in 1881 at the University of Pennsylvania.

While Joseph Wharton never ventured into political office, his financial power gave him significant influence among D.C. politicians. In fact, Wharton, while an owner of Bethlehem Steel, became president of the American Iron and Steel Institute, effectively the steel industry’s chief lobbyist. In doing so, he garnered close ties with Republican presidents Ulysses S. Grant, Rutherford Hayes, and Benjamin Harrison. (Industrial monopolists having such political influence over government was commonplace before the trust-busting era of Teddy Roosevelt and the Sherman Antitrust Act of 1890.) Indeed, Wharton’s influence was felt over several decades in Washington as he lobbied successfully for tariff laws to protect U.S. manufacturing, in addition to successfully lobbying for the partial use of nickel in U.S. coinage. (Wharton had a monopoly on U.S. nickel production as the majority stakeholder in Bethlehem Steel.)

RELATED: What Donald Trump Doesn’t Know about U.S. Trade

One could argue that while Joseph Wharton perhaps did not have the benefit of academic evidence of the economic damage done by protectionist tariffs, Donald Trump cannot claim ignorance — no doubt having heard about the benefits of free trade during his time at the Wharton School in the late 1960s.

Indeed, popular support for tariffs was commonplace in the 19th century and even throughout the first half of the 20th century. A Republican president, Herbert Hoover, signed the Smoot-Hawley Act on June 17, 1930, which raised U.S. tariffs on over 20,000 imported goods to record levels. Unfortunately, the Smoot-Hawley tariffs and the ensuing Great Depression of the 1930s are a textbook example of why Trump’s proposed 40 percent tariff on imported Chinese goods would be a grave economic mistake. Federal Reserve Chairman Ben Bernanke, a scholar of the Great Depression, put it best, commenting that “economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.”

#share#The fact is that countries gain from free trade largely by being able to focus on producing goods they specialize in, and through being able to buy other countries’ specialized goods cheaply — an economic concept known as comparative advantage.

Comparative advantage is a large part of why the iPhone and other smartphones are so inexpensively available today. Many of the iPhone’s manufactured components are more cheaply produced abroad — in Asian countries that have reduced their trade barriers with the U.S. — than could be produced here.

RELATED: What Trump Doesn’t Understand — and It’s a Lot — about Our Trade Deficit with China

Of course, Trump is not alone in failing to learn the lessons of comparative advantage: Both Democratic candidates — Bernie Sanders and, to a lesser extent, Hillary Clinton — have been critical of free-trade agreements like the Trans Pacific Partnership (TPP) this election cycle. They say that protectionism will save American jobs and relieve pressure on a squeezed American middle class.

#related#But this completely overlooks the economic growth benefits to middle- and low-income workers that would result from more free trade with Asian countries. A recent study by scholars at the Peterson Institute for International Economics found that a bilateral free-trade agreement with China would increase U.S. exports by almost $400 billion annually, increase U.S. national income by more than $100 billion annually, and add 1.7 million jobs to the U.S. economy over ten years. By contrast, Donald Trump’s proposal to impose a 40 percent tariff on China would ultimately raise the prices of consumer goods for all Americans, increasing the cost of living for the impoverished.

You won’t hear much of this, however, from the Wharton School: The school’s administration has requested that faculty not comment publicly about Trump, whether it’s praise or criticism. But perhaps the school should make a special exception and ask its economics professors to speak out against this protectionist policy blunder and remind people of the benefits of free trade.

Jon Hartley — Jon Hartley is an economics writer based in New York.

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