Whether Keynesian or Austrian, there is one thing that pretty much all economists can agree on: free trade makes everyone wealthier.
It’s quite a simple notion, someone has something that I want and I have something that they want. We both win if we trade with one another. The problem now is that nobody believes in free trade. You have President Trump escalating trade wars and top Democratic presidential nominees crying out against free trade here and here.
This hatred of free trade isn’t coming out of left field, and there’s a reason why political leaders are attacking it. There has been a segment of America that feels as if free trade has left them worse off, a segment that is fairly important politically. Middle America has seen some of their jobs get transferred to places like Mexico, thanks in part to agreements like NAFTA. There is debate over the real impact of NAFTA on jobs in the United States, but middle America feels as if free trade has had an overall negative impact on their lives.
This abandonment of free trade is quite a stark turn-around from a political landscape that was fairly pro-trade. You had pro-trade Democrats like Bill Clinton, who signed NAFTA into law, and Republicans like George W. Bush who promoted free trade agreements with other countries. Today, the political landscape is vehemently opposed to free trade and seems to lurch further that way.
However, the facts tell us that it is time to return to a period where free trade reigned supreme. The odd thing is that, according to the latest surveys (but we know how those go), most Americans are seeing the effects of protectionism and opposing it. Whether this is voters being opposed to the President’s actions or an issue with how Trump is handling the matter, as Democrats have claimed, most people are opposed to this specific trade war.
The only option that opposes protectionism is free trade. But beyond the fact that trade wars generally have ill effects on the very people they’re supposed to help, free trade makes us all wealthier. One might ask how this is possible if we are outsourcing jobs to other countries for products that we’re going to consume. Quite frankly, the United States shouldn’t be creating those products. We’re a superior country and can put our resources into different sectors that are more productive, such as research and development. Compare us to a country like Mexico, which has lower capital, and their people lack the know-how or skills for something as intensive as research and development. They are better suited to manufacture cars or air conditioners—both their financial cost and their opportunity cost are going to be cheaper. If the United States were to put that effort into manufacturing, we would be losing out on economic gains from redirecting that capital towards R&D.
Once we’ve created a medicine that Mexico needs, and they have manufactured cars that we need to get around, what do we do? We trade. It’s that simple. We sell the medicine to Mexico for a price that the market demands and they do the same with the cars that they produced. We both end up winning since we exchanged what we produced for something that we find equally valuable.
This is how free trade works. Nobody is a loser as Trump may imply.
Now, there will be a deadweight loss if we do open up to complete free trade. Some jobs are going to be lost in the manufacturing sector as it simply becomes much cheaper to have them overseas. Unacceptable as that may seem, protectionist policies only lead to a greater deadweight loss. The deadweight loss right now has us putting capital into activities that are inefficient, where we could otherwise be maximizing efficiency, thereby making the country wealthier overall. We would end up creating jobs and gaining less expensive products. So, no matter what we end up doing, we’re going to end up losing something. It’s a question of which loss is more expensive, and The facts are clear: protectionism is far more expensive.
So, now I call on the Democrats and the GOP to come back to that era of free trade. Let’s open up to the actual ideas that make our country wealthier, ideas that aren’t really that debatable, despite what pundits might have you think. It’s time for America to be pro-free trade again.
The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.