On Trump's Trade Policy
Donald Trump has repeatedly criticized countries rich in unskilled labor—China, Mexico—for stealing American jobs. He advocates greater tariffs and believes America must put its foot down when making trade deals with other nations. Scolding the North Atlantic Free Trade Agreement, Trump calls for American independence in the face of rapid globalization. Though Trump’s ambitious plan may appeal to some workers, his aggressive policies will hurt the majority of American consumers. It’s easy for politicians to blame economic stagnation on trade deals, but it’s harder to envision a viable alternative to them.
Developing nations like China and Mexico differ from the United States in the products that they most often produce. China and Mexico tend to specialize in unskilled labor (i.e. simple manufactured goods), whereas the US generally specializes in sophisticated goods (i.e. commercial aircraft). In other words, only labor-intensive industries in the US will favor trade protectionism, as these industries are much weaker than analogous ones in developing countries. Since the US has few industries that use unskilled labor, trade protectionism will only favor a select group of producers. For example, the government’s protection of American sugar has contributed to exorbitant prices. Ask yourself the question: Why should we raise prices for consumers in order to satisfy a few companies? Little do Americans know that they pay exorbitant prices for sugar every year, simply to benefit of handful of sugar producers in the South.
If America raises its tariffs on goods from one country, that country will implement retaliatory measures, perhaps by restricting American exports. Developing nations will have little financial incentives to buy America’s medical equipment, machines, or aircraft if we shut down their clothing, furniture, and agricultural produce. In the end, we damage our strongest industries in order to bolster a few interest groups. China’s burgeoning economy gives it substantial bargaining power in world politics. Its businessmen will not hesitate to cut deals with Americans in favor of friendlier trade conditions in other nations.
In the 1990s, the Clinton administration imposed tariffs on Asia’s booming car industry. At that time, the three big car companies of Detroit faced bankruptcy. By subsidizing Detroit’s failing auto industries, the US government placated their concerns but condoned their deterioration. If Clinton had forced the companies to withstand the Asian competition and improve their technology, perhaps we would see a much wealthier Detroit today.When I hear Trump supporters proclaiming a stronger American workplace, I wonder whether they have considered the repercussions on most American consumers and businesses. I am not advocating for unfettered free trade. Rather, I am pointing out the importance of meticulous planning and broad considerations when making trade deals. Trump must consider the potential of the Chinese market for export-oriented producers in the United States and structure his trade policies accordingly. Instead of going for confrontation with the hawkish Chinese government, the United States must engage China in world institutions while still strengthening ties with India and Vietnam to preclude Chinese aggression.
I believe it is worth sacrificing the protection of our weakest industries for the prosperity of our strongest industries, happiness of our consumers and openness in global markets. If Trump truly hopes to “Make America Great Again,” then he should turn to Reagan’s insightful words: “The way up and out of the trade deficit is not protectionism, not bringing down the competition, the answer lies in improving our products and increasing our exports.”