Toe the Line: College Republicans | In defense of free trade

By Michael Bogdanos 11/12/17 11:29pm

The rise in free trade throughout the past half-century has been a vehicle for profound economic progress. Despite the increase in popular support for tariffs and protectionism, encouraging trade remains the best framework for United States foreign economic policy.

Behind the upsurge in protectionism is the loss of manufacturing jobs. Prominent politicians have tapped into these workers’ fears, blaming job loss on terrible trade deals and foreign boogeymen. But stopping trade and imposing tariffs will not bring back jobs. The idea that free trade agreements have enabled foreign boogeyman to steal American manufacturing jobs is simply in direct violation of the facts. There is no evidence that imports are the primary driver of manufacturing job loss, or even that the manufacturing sector itself is in jeopardy. 

Manufacturing jobs, as a percentage of the American workforce, have been declining since the late 1940s. They have been dropping in terms of sheer numbers since 1979, significantly before North American Free Trade Agreement and the World Trade Organization.  At the same time, the United States has remained the world’s second largest manufacturer, producing 17.2 percent of global output. In other words, for nearly a century, American manufacturing has remained globally competitive while steadily decreasing the number of workers they employ. 

Why? Because increases in productivity have allowed firms to produce the same levels of output with significantly fewer employees. Even the most pessimistic studies concede a limited connection between trade and job loss — the American Economics Review, for example, attributed only a quarter of the decline in manufacturing employment to import competition. A more recent study from Ball State University pins 90 percent of the decline to productivity increases. 

If this decline has been steady and protracted, why do so many Americans suddenly feel abandoned and betrayed by globalization? It comes down to a disturbing lack of labor dynamism. While the rise and fall of various sectors and businesses is, and always has been, an integral part of the ebb and flow of a market economy, the United States has recently struggled to retrain and relocate employees from old industries into new and innovative ones. 

Ironically, protectionists have capitalized on this struggle (and the ensuing distrust of the American economy) to push an economic policy that would only worsen the symptoms. More specifically, turning away from free trade would enact more damage to the manufacturing sector and would place an enormous burden on the shoulders of American families. 

American manufacturing depends on foreign imports and thrives on trade. Instead of competing with American goods, about half of foreign imports are actually inputs for American manufacturers. For example, around 800,000 U.S. auto industry jobs depend on supply chains across North America, a fact conveniently overlooked by NAFTA critics. Placing high tariffs on foreign imports would only serve to make it more expensive for American manufacturers to stay in business, thereby achieving the exact opposite result that protectionists are after.

Even if through some economics-defying miracle, abandoning free trade somehow benefited manufacturers, American households would be stuck with the bill.  Tariffs raise the prices of foreign goods. They also force families to subsidize price hikes by the American manufacturers that compete with the foreign imports. If the price of a foreign good skyrockets, the domestic corporation can then afford to drastically raise its prices, and American consumers are stuck paying increasingly large amounts for the same products. 

This was seen in 2009, when President Barack Obama imposed a 35 percent tariff on Chinese tires. Even by the most optimistic estimates, the tariff saved a handful of jobs at a cost of $900,000 per job.

Conversely, free trade brings the same goods to American citizens for significantly lower prices. It is this price reduction, as well as the jobs created and maintained by international supply chains and trade routes, that led the Peterson Institute to conclude that global trade liberalization has generated between $7,100 and $12,900 in additional annual income for the average American household.

Any other government policy that threatened to lose around $10,000 for the average family, that had to spend $900,000 to create a single job, would be rejected immediately — and with good cause. The fabricated presence of a foreign “adversary” out to steal American jobs does not change the numbers. If industries begin to ebb, the solution is a dynamic labor market that encourages movement to innovative, productive fields. The solution is not to slap a tariff on the foreigners and call them the “bad guys” in the logic defying hope that somehow it will help. American policy makers must move past a “buggar-thy-neighbor” view of the world that requires a loser to make us feel like winners. American consumers and manufacturers are objectively better off when they have access to goods and resources from around the world.

MICHAEL BOGDANOS is a College sophomore and a co-chair of the College Republicans Editorial Board.