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On Trump and Trade

by Ramesh Ponnuru

The public has shown little appetite for protectionism

Donald Trump has changed his positions, and maybe even his views, on a lot of issues over the years. On one issue, though, he has been remarkably consistent for decades. He was hostile to free trade in the 1980s, when he complained that Japanese businessmen would “knock the hell out of our companies” and were “buying all of Manhattan.” And he is hostile to free trade today. He mostly warns about the threat of Chinese imports these days, but he also mentions Mexico, Japan, “and every other country we do business with.”

Trump’s victory in the Republican presidential contest is leading other Republicans to wonder whether the party should modify its stance on trade. But both the economic and the political evidence caution against overreaction.

For several decades, a post–World War II bipartisan consensus has held that reducing tariffs and other barriers to trade would promote prosperity in all trading countries. This consensus has been limited in several ways. Neither party has acted on the teaching of most economists that countries should adopt unilateral free trade even if other countries do not. Both parties have argued for liberalized trade on the ground that it would create jobs for exporters, and have downplayed the benefits of cheap imports for consumers. Both parties have also used trade barriers to buy off, and divide, protectionist lobbies. The George W. Bush administration, for example, imposed temporary steel tariffs to win support for trade-enabling legislation. Both parties have, however, agreed that the general direction of policy should be toward freer trade.

Republicans have in recent decades usually been more pro-trade than Democrats. When Bill Clinton was president, he won passage of the North American Free Trade Agreement over the opposition of most House Democrats. Republicans have had a protectionist wing, too, but in recent decades it has been smaller than its Democratic equivalent, and shrinking. Still, partisan divisions have sometimes defied this pattern. In 2012, Mitt Romney argued that President Obama had taken an insufficiently hard line against China’s currency manipulation and said that he would use sanctions to change its behavior.

This year’s political events have seemed to challenge the basic bipartisan consensus that trade liberalization is in general good for the United States and the world.

It’s not just Trump who has undermined that consensus. Senator Ted Cruz, the Republicans’ second-biggest vote-getter, turned against trade-promotion authority — legislation that would make it easier for presidents to make trade deals — and came out against the Trans-Pacific Partnership (TPP) during the campaign. On the Democratic side, Senator Bernie Sanders has been a critic of free trade for years. Hillary Clinton, too, eventually came out against the TPP after repeatedly touting it.

In part because of this political context, a new study highlighting the costs of trade with China drew a lot of attention. The case for trade has always acknowledged that it hurts some workers, companies, and communities. The expectation has been that its net effects are nonetheless positive: Consumers can save money on their purchases; companies can buy cheaper inputs; and new jobs are created as the economy adjusts to new patterns of specialization. But labor economists David Autor, David Dorn, and Gordon Hanson found that the surge in imports from China in the first decade of this century eliminated jobs on net. The study suggested that this surge may have been linked to China’s entry to the World Trade Organization (WTO) in 2001.

Protectionists seized on the study, understandably given how long they have been on the defensive intellectually. Free-traders’ confidence was shaken. Jim Tankersley, who writes about the economy for the Washington Post, speculated that Republicans had set Trump’s rise in motion in 2000, when Congress enacted legislation letting China into the WTO. The shift of jobs to China that followed that legislation swelled the number of dispossessed voters open to Trump’s angry and protectionist message.

Autor has himself said that he favors trade with China anyway. It has enriched some of the world’s poorest people, and the study suggested that the “China shock” to American labor markets has ended. He says that what the study revealed is that those markets have become too slow to adjust to change. Not all of that change involves trade. Technological advances have eliminated more manufacturing jobs than imports have: U.S. manufacturing output is at record levels but requires fewer people. Scott Lincicome expanded on how to increase labor dynamism in a recent issue of NR (“The Truth about Trade,” April 11).

The Autor study, read in full, does very little to support Trump’s proposal for 45 percent tariffs on Chinese goods. It points to several causes of the import surge, causes that do not include reduced American tariffs. As a condition of entry to the WTO, China had to privatize or shut down many state-owned industries, raising its productivity. It had to reduce barriers to exports. It had to reduce its own tariffs, which — here the study drew on another one, from economists Loren Brandt and Peter Morrow — further boosted output by reducing the cost of inputs for exporters. Before China joined the WTO, the U.S. (and Europe) had for years subjected its exports to low tariffs; upon its entry those low tariffs were made permanent. The added certainty encouraged Chinese firms to invest in exporting.

Raising our tariffs now is not going to cause China to resurrect its old state-owned firms, and it would raise input costs for American manufacturers. Nor would breaking with a nearly century-old policy of liberalizing trade increase business certainty. Protectionists commonly charge that free-traders have made a religion out of their economic views, and it is certainly true that free-traders sometimes ignore the losers from trade. But one need not have a dogmatic faith in free trade to see that its critics have not put forward a superior policy.

It is also worth noting that for all the political anxiety surrounding trade, polls do not show any broad public turn against it. Over the last 24 years, Gallup has asked whether trade is more of an opportunity (from exports) or a threat (from imports). In February — the month that saw the first four primary contests, in which Trump won a majority of delegates — 58 percent of respondents chose the optimistic answer. That number has never been higher. Only 34 percent chose “threat”; the last two years have represented lows for that measure.

According to the Gallup poll, Republican voters are only a bit less optimistic about trade than they were from 2000 to 2005; Democrats have grown markedly more optimistic during the Obama years than they were in the Bush years. One reason pundits have read Trump’s victory as proof of protectionism’s political power is that he has drawn disproportionate support from voters who have less formal schooling, and those voters tend to be more hostile to trade. But Gallup has found a large positive shift on trade among Americans from every educational background, and especially among those who never went to college. In 2011, only 31 percent of these Americans said trade was mostly an opportunity; in 2016, 52 percent did.

Blogger Evan Soltas looked through data from the Michigan primaries and found another reason for skepticism about the political importance of trade. There was no pattern linking counties’ loss of manufacturing employment to their support for Sanders. And the more manufacturing jobs a county had lost, the fewer votes it gave Trump: exactly the opposite of the pattern one would expect if anger at trade-related job loss had a lot to do with his victory.

The political landscape does not reveal great public enthusiasm for further trade liberalization. But it does not show any support for a turn toward protectionism, either. A relatively liberal trade order is here to stay, as it should be, and politicians should not be apologetic about defending it.

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