It hasn’t been that long since the “New Economy” of the 1990s was lauded as bringing a bonanza of benefits to average Americans, and particularly to the disadvantaged. Wasn’t that virtually the entire substance of the defense advanced of Bill Clinton as his ethical transgressions mounted? That his policies had brough unprecedented prosperity, lower poverty, higher homeownership, etc.?
Now some of the very people who sung Clinton’s praises in the 1990s want to undo one of the few things he (importantly) got right: the expansion of free trade in North America and around the world. While some partisans in both parties — defensively by Democrats and accusingly by Republicans — associate Clinton’s economic policies primarily with a tax increase in 1993, its significance was swamped by the effects of the tax cuts he helped push through Congress, by which I mean the North American Free Trade Agreement and other tariff reductions. These bipartisan moves were critical in setting the stage for economic growth.
But since the onset of recession in late 2000 or early 2001, trade liberalization has gotten the (bad) rap for eliminating millions of jobs and hollowing out American businesses. The political result has been a wave of neo-protectionism, offering comfort to the few old-time protectionists that had remained in Washington during the 1980s and 1990s. It was as if a few stubborn Ptolemaic astronomers, decades after Copernicus had exposed their pretensions of understanding the universe, had suddenly found themselves surrounded by new disciples convinced that the Earth really was the center of the universe, and anyone who said anything different was perversely anti-Terran.
There is really very little debate among serious economists about the value of international markets, low barriers to trade, and comparative advantage. Right, left, center — you just won’t find much disagreement. For months if not years, folks seeking protection and politicians willing to pander to them have fired salvo after salvo of invective at the powers-that-be, tearing up what had been a productive relationship on the issue among Democrats and Republicans and receiving little criticism in return.
Finally, it seems, these protectionist corsairs are getting as much as they’ve been giving. Several new studies, reports, and articles have come out in recent weeks challenging the notion of raising consumer prices as a pro-growth measure and quantifying the job creation that occurs when consumers can buy foreign-made goods for less and thus have more to spend on American-made goods and services.
One such study, just out from a tech industry trade group, suggests that North Carolina will gain $3.3 billion in economic growth and nearly 10,000 net new jobs through expanding trade in that sector alone. I haven’t checked the numbers out, but they look reasonable at first glance. By taking advantage of the best possible talent and the best available prices, technology firms in North Carolina can prosper and hire people here for jobs, often the high-value jobs, that cannot effectively be performed by others. Hamstring this process of innovation, and your attempts at protection will likely result only in chasing such firms out of the U.S. altogether.
I do have a concern about this kind of defense of basic market economics, however. To return to my naval analogy for a moment, these arguments about productivity and job creation are akin to a merchantman coming alongside the protectionist pirate ship and giving it a broadside. By definition, broadsides allow each ship to fire its entire complement of cannon on that side, port or starboard as the case may be. This can lead to inconclusive results. For every study suggesting a net job gain from trade, opponents will cite individual companies or workers that have lost out or design studies of their own to prove that, yes, from an economic perspective, the Sun really does revolve around the Earth.
The naval tactic superior to the broadside is known as “crossing the T.” If you look at the shape of that capital “T,” you’ll get the idea. You were to maneuver your ship in such a way that it would present its port or starboard to the bow or stern of the enemy, neither of which could be well-armed due to the confined space. Thus you could bring to bear far more firepower on the enemy than he could on you.
In the trade debate, advocates of markets can cross the T by focusing on the effects of trade barriers on consumers. Don’t forget that raising a tariff or quota on imported goods is a tax increase. Furthermore, it is a tax increase that disproportionally strips take-home pay from workers and households of modest means, often for the benefit of a few relatively wealthy people who wouldn’t be caught dead in Wal-Mart.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.