Free trade has been under attack since the adoption of the North American Free Trade Agreement (NAFTA) nearly three decades ago. But it wasn’t until Donald Trump took over the presidency that trade deals found themselves in the crosshairs of outspoken nationalists, protectionists and isolationists, left and right. As Trump proudly declared in 2018, “I’m a fare man!”
Unfortunately, if today’s vigorous champions of free trade held an annual conference, it would most likely be held in a broom closet.
If we assume that free trade (in effect, managed trade) is a desirable goal, what is the likelihood that the United States and the world will return to the relatively open, rules-based framework of liberalization that we previously enjoyed? ? Of course, the economic conditions are good. In 2022, global trade is expected to return to pre-pandemic levels and global GDP to reach 4.4%.
From a U.S. perspective, the nation’s external trade challenges are many and varied. (A comprehensive compendium is listed each year in the government’s National Trade Estimate of Foreign Trade Barriers.) While average tariff rates are low—5% generally, 2% in the United States—these are the barriers non-tariffs which are the most inconvenient.
In Brazil, for example, subsidy programs, import licensing, and customs and service barriers are notable obstacles for U.S. businesses, while in China cyber theft, pressures on technology transfers and investment restrictions are stifling US businesses. Intellectual property protection is a serious problem in both countries.
But is the United States a model of commercial virtue when it comes to free trade? Not at all. The US President can institute tariffs at will. In fact, President Trump imposed tariffs of 25% on imported steel and 10% on imported aluminum from most countries in 2018, arguing that these protections were necessary for US national security. United, maintaining healthy national production. The United States also imposed a series of tariffs on China, from 3% to 20%; but the two nations reached an agreement for the United States to reduce that rate in return for China buying $200 billion in additional goods from the United States by December 2021. (As of today, China has honored only 57% of this commitment.)
In addition to U.S. restrictions on foreign investment in energy, transportation, financial services, and state and local government purchasing, the U.S. maintains “Buy American” provisions governing the 1.7 trillion dollars. This concerns all steel and manufactured products used in public works and construction projects. President Biden recently announced even stricter “Buy American” requirements, requiring that at least 60% of products obtained through the program be made in the United States.
What are the impacts of US protectionism? Examples abound. Trump’s steel tariffs are costing US consumers between $900,000 and $1.2 million per steel job saved, as companies have had to pay 10% more for steel. While thousands of other companies use steel than they make steel, one can see the economic illogicality at play here. Protectionism applied to building materials such as Canadian softwood lumber has driven up house prices, and government price support for sugar has cost consumers $3 billion in higher food prices.
Most interesting, however, is an in-depth study of the effects of the 2018 trade war. It found that imports fell by 31.5% and exports by 11%, and that annual consumer and producer losses due rising import costs amounted to nearly $70 billion. Ironically, the hardest hit workers were workers in heavily Republican counties.
The benefits of trade are numerous and include better allocation of resources, increased productivity, economies of scale, higher wages, employment growth in export industries, and greater choice and lower prices for consumers and businesses. Of course, there are also significant costs, such as job losses and the contraction or closure of businesses due to competition from imports and the relocation of production.
Nevertheless, the arguments for free trade are compelling. Over the past 30 years, US trade-dependent jobs have grown 186%, four times faster than total US employment, with more than one in five trade-related jobs; and of the 42 million trade-related jobs, nearly 40% are held by minority workers. Of the approximately 290,000 US exporters, 97% are small and medium-sized businesses, which account for more than 40% of US exports.
For many who expected a return to pre-Trump normality in trade policy, the results to date have been extremely disappointing, as the Biden administration has maintained most Trump administration tariffs. in place. As George Mason University’s Stuart Malawer scornfully observes: “I consider Biden’s trade policy to be Trump without the tweets.”
The Biden administration’s wake-up call on trade policy is particularly disappointing. At the administration’s request, the ITC launched a fact-finding inquiry as part of the USTR’s efforts to institute trade policy initiatives that take into account gender, race, ethnicity, wages and wage level – with a focus on the effects on the underrepresented and underserved.
The drive to integrate social objectives into trade policy is not unique to the United States. The UK also faces this problem; but as UK trade adviser Daniel Hannan argues: “Such important moral issues should be treated as issues in their own right, not as slip-ons in trade deals.”
Either way, if the United States is to maintain, strengthen, and expand its role as champion of American competitiveness, it must pursue an agenda that emphasizes both market opening and Trade Law ; sensible industrial policies; Innovation and Entrepreneurship; consumer-centric policies; and skills upgrading and workforce development. Nothing less will do.
Jerry Haar is Professor of Business at Florida International University, Global Fellow of the Woodrow Wilson International Center for Scholars in Washington, DC, and Task Force Member of the Council on Competitiveness. He is also a member of the board of directors of the World Trade Center Miami.
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