Opinion

A Simple Fact Is Getting Lost in the Trade Debate

In the frenzy of policy debates, underlying fundamental truths can often be obscured. So here’s a simple fact that everybody needs to keep in mind: Without trade, your standard of living would be much lower.

That’s true whether you are a steelworker in Indiana, an autoworker in South Carolina or an office worker in Oklahoma.

Free and open trade between individuals, companies and countries has been one of the most fundamental ways to promote prosperity throughout history. Countries with freer trade have stronger economies, less hunger and better treatment of the environment. Free trade means workers, businesses, states and countries can specialize in what they do best and trade for the rest. Consumers then have access to a dazzling array of more affordable goods and services with innovations unimaginable to previous generations.

Punitive measures like the tariffs President Donald Trump just announced on numerous goods from China do not represent progress. Neither do steel and aluminum tariffs that take effect today – or earlier ones on solar panels and washing machines. They are a step backward toward a past we do not want to revisit – one that would hurt workers, consumers and companies in this country and around the world.

And, they don’t really work, even by the standards of their supporters.

Take the steel industry, the alleged beneficiary of the latest round of tariffs. Numerous academic studies have shown protections like tariffs fail – according to one study after decades of various protections, steel’s capitalization was down and bankruptcies persisted.

The lesson is that tariffs and other trade protections are simply not effective to recharge an industry. The reason? The very protections intended to give the industry a temporary window to regroup undermine its incentives to do so. Competition creates those incentives for businesses to innovate, improve their products and lower costs. When protected from competition, this doesn’t happen. Frequently, as with steel, industries simply return to Washington asking for more protections.

These new rounds of tariffs will prove no more beneficial.

But they will produce huge costs on consumers and industries that use steel and aluminum. If past is prologue, those will range between $200,000 and $2.3 millionfor every U.S. steel industry job protected. One recent study estimated that U.S. workers will lose 18 jobs for every steel and aluminum industry job, two-thirds would be in production and lower-skilled jobs.

If you’re worried about China, remember – American families, workers and businesses benefit from access to abundant and affordable materials and goods while China benefits from the goods and services our farmers, workers and businesses export. Slapping tariffs on apparel and other consumer goods will hurt the least fortunate the most and have the same harmful impact on jobs as other tariffs. China is our third biggest export market overall (after Mexico and Canada) and first for our agricultural exports. Policies opening markets are a net win-win – not a zero-sum game.

And, while Canada is the biggest steel importer to the United States, Canada is also the largest buyer of U.S. steel exports, followed by Mexico. Win-win.

Tariffs and trade protection are a negative-sum game. Well-connected special interests like steel win, but everyone else loses.

What – if anything – should be done? First, our own trade policies should be more open. We rank 63rd in the world in trade freedom. Let’s make America freer by ending harmful and costly subsidies for corn, wheat, cotton and other crops, and dispensing with trade barriers such as sugar quotas. Congress should repeal the protectionist Jones Act and revisit trade authorities in current law with an eye toward reducing their biases toward trade barriers.

We should return to the negotiating table on the Trans-Pacific Partnership. While not perfect, U.S. participation would put pressure on China to lower its protectionist measures. This would also be a positive step toward freer trade with other TPP countries.

Lastly, continued relief from overly burdensome regulations, weeding out corporate welfare, and removing government barriers to opportunity for individuals and businesses would foster a thriving economy that benefits ordinary Americans.

That should be the primary focus of the administration, not engaging in trade wars which – in the end – we all lose.

 

Alison Acosta Winters is a senior policy fellow at Americans for Prosperity.

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