The economic and national security rationale for free trade
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Free Trade, one of the greatest blessings a government can confer on a people, is in almost every country unpopular– Thomas Macaulay, 1824

President-elect Donald TrumpDonald John TrumpBiden slams Trump over golf gif hitting Clinton Trump Jr. declines further Secret Service protection: report Report: Mueller warned Manafort to expect an indictment MORE’s trade agenda is in conflict with the national interests of the United States.  The economic and national security consequences of his administration’s suggested trade policy are cause for concern for all Americans.

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The Political Challenge of Free Trade Advocacy

The central political challenge of the free trade agenda is that the benefits are diffuse while the costs are direct. All consumers benefit in small proportion relative to the large losses suffered by workers in sectors displaced by import competition. Though the net effects are indisputably positive, this asymmetry of trade impacts has hindered free trade advocacy since Adam SmithAdam SmithCongress, authorize fresh base closures to strengthen our military GOP lawmaker drops effort to force vote to extend DACA protections Trump officials brief lawmakers on North Korea MORE challenged the mercantilist trading policies of the 18th century.

Who imagines that the welfare of Americans would be improved if our economy was fragmented among our fifty states, each with prohibitive barriers to the movement of goods and services across state lines? Our fifty states benefit from the free exchange of goods and services across state borders in the same way that nations benefit from exchange across international borders.

Chief among Trump’s arguments against free trade are job losses. The U.S. International Trade Commission (USITC), an independent, nonpartisan fact finding federal agency examined the economic impact on the United States of bilateral and regional trade agreements reached between 1984 and 2012. Their findings, published in June of this year, demonstrated that the net effect of U.S. trade agreements on U.S. employment is positive: 159,000 additional higher paying jobs were created. For workers displaced by trade liberalization, education and retraining are the proper mechanisms for assisting them. Policy positions that withhold the gains from trade from an entire country are not.

A Generous Inheritance: The Post War Economic System

When allied leaders gathered to plan for peace near the end of the Second World War, they were united in the view that free trade not only promoted economic prosperity, but also international peace.  Protectionist trade policies that came into force during the 1920’s and culminated in America’s infamous Smoot Hawley Tariff Act of 1930 deepened the effects and extended the duration of the Great Depression that struck in 1929. As national economies deteriorated, political instability increased and war ensued.  By the time the conflagration that engulfed the world in the late 1930’s was finished, over 60 million people were dead and great nations of Europe and Asia had been laid to waste. 

Policy makers of the time believed that if goods did not cross borders, soldiers would.  The international system established at the end of the Second World War is the direct result of visionary American leadership informed by an American commitment to internationalism as a means of securing peace.  That system and the values that underpin it have been championed by every Republican and Democratic administration since 1945. The hotly contested Trans Pacific Partnership (TPP) represents an immediate test of whether America will maintain its role as a reliable global leader of this system or whether it will abdicate to others.

U.S. participation in TPP negotiations began in 2008 under the Bush administration.  The Obama administration negotiated the final agreement. Trump wants to kill it.

The USITC estimates that TPP will increase U.S. real GDP by $42.7B and create a net 128,000 full-time jobs by 2032 as a result of enacting TPP. Though positive, these impacts are hardly significant given the size of the U.S. economy.  The significance of TPP lies more in its strategic value for shaping the political and economic agenda of the Asia-Pacific region than it does the economic implications for the U.S. economy.

TPP, which excludes China, serves as a 21st century mechanism for bringing together countries of the region to pursue their economic interests within a U.S. driven framework.  If the U.S. abandons TPP, TPP participating countries will require an alternative to support their trade agenda.  That alternative is China.

China, not a participant in TPP, is supporting an alternative to TPP that would include 16 Asia-based countries excluding the U.S. – the Regional Comprehensive Economic Partnership (RCEP). The U.S. decision on whether to ratify TPP amounts to a question of whether Asian economic integration will be based on a U.S. (TPP) or a Chinese led initiative (RCEP).  A U.S. withdrawal from TPP would be tantamount to the U.S. stepping back from its leadership role in the region, creating a vacuum into which China would logically step and which the region would have no choice but to accept.

The economic and security related arguments made here make the case for a continued commitment to a liberal global economy. If these arguments are unable to compel elected officials to support the free trade agenda and to support TPP, we might remind them that despite promises of prosperity that were to come from the Smoot Hawley tariffs of 1930, the depression worsened and both Sen. Reed Smoot and Rep. Willis Hawley lost their reelection bids in 1932.

Sean Ryan is a partner with global consulting firm A.T. Kearney where he leads the Strategy and Marketing & Sales Practices for the Americas. Sean is based in A.T. Kearney's Chicago office.


 

The views expressed by authors are their own and not the views of The Hill.