Will the Real Free-Trade Party Please Stand Up?

Photo by yuukin from Tokyo, Japan, CC BY 2.0 , via Wikimedia Commons

A lot of people think I’m a Democrat because I spend so much time criticizing Donald Trump. The truth is that I’m one of the comparatively few traditional conservatives left in the country. Biden may be, as I’ve said before, the most conservative candidate in the race, but that does not make him conservative and it leaves him to my left on quite a few issues. So, if you want to see me criticize Joe Biden, buckle up.

One of the big disappointments of the Biden Administration was the failure to remove a great many of Donald Trump’s massive barriers to trade. Although Biden did campaign on lifting Trump’s tariffs, which are literally taxes on trade, in practice he left many of the tariffs in place, especially those on China, while lifting many that impacted other trading partners such as Europe.

I suppose I could give Biden the benefit of the doubt that the Adminstration might believe that removing the tariffs might make their fight against inflation more difficult. After all, making imported goods less expensive could stimulate consumer demand and goose the economy rather than causing it to slow.

As it is, the Tax Foundation estimates that the combination of Trump’s tariffs and retaliatory tariffs imposed by his targets has shrunk the GDP by 0.25 percent, cost hundreds of thousands of jobs (which may be just as well because unemployment is so low that we’d have a hard time filling those jobs without more immigration), and depressed wages by about 15 percent. When Republicans talk about stagnant wage growth, don’t forget that Trump’s tariffs played a major role.

It is axiomatic that if you tax something, you get less of it. Taxes on international trade have the effect of reducing international trade. In Donald Trump’s view, that is a feature, not a bug, but I’m not sure what Biden is thinking.

Biden’s new tariffs target Chinese electric vehicles and solar cells as well as steel, aluminum, and medical equipment. With moving away from gas-powered vehicles a big priority for many Democrats, Biden’s move is particularly curious. If we want Americans to shift to electric vehicles, the way to do that is to make electric cars more affordable as well as more capable. A tariff on imported EVs does the opposite. (Barron’s notes that the new 100 percent tariff would have no practical effect because the current 25 percent tariff has already closed off US markets to Chinese EVs.)

Milton Friedman, who may be the only charming economist who ever lived, once explained in simple terms why tariffs are counterproductive and damaging to the country that imposes them.

“In time of war, we blockade our enemies in order to prevent them from getting goods from us,” Friedman said. “In time of peace, we do to ourselves by tariffs what we do to our enemy in time of war.”

In other words, imposing tariffs on imports is like waging war on our own economy. While the aim may be to hurt foreign competitors, the real victims are American consumers and businesses who suffer from higher costs and fewer choices. Another axiom of taxes is that taxes are ultimately paid by the end user of the good or service. In the case of federal tariffs, that is the American consumer.

An additional class of victims is American exporters. US companies that send a lot of their products overseas are often damaged by retaliatory tariffs. There are a great many examples of this, such as Harley Davidson, the iconic motorcycle company, which saw a 27 percent drop in profits when Trump launched his tariff war. When the tariffs were removed in 2021 under President Biden, Harley’s profits and stock took off.

Another example came from a trip to Canada that I took in 2019. While there, I spoke to lobster fishermen who explained that Trump’s tariffs had been a boon to Canada. In an article for The Resurgent (archived on my blog), I detailed how the trade war between the US and China had closed off export markets for American lobster. Chinese buyers still wanted their lobster so they shifted to Canadian suppliers who found a new export market. The big losers turned out to be Americans.

The bottom line this year is that there is no free-trade candidate. The Republican Party’s shift towards protectionism is just one more way that the party has become like the Democrats and is another policy example of how Donald Trump is not a conservative.

Not long ago, it seemed as though free traders had won the policy battle. Democrats who, until Trump, had been the primary supporters of higher taxes and government central planning, were coming around on the idea of trade. Bill Clinton signed NAFTA into law after the treaty passed with bipartisan support and became a phenomenal success for all three member nations. But now, it seems that the last free-trade president that we have had was [checks notes] Barack Obama? Can that be right?

Yes, that’s true. Obama was a proponent of the Trans-Pacific Partnership, a trade consortium that would have isolated China by lowering trade barriers between the US and many other countries around the Pacific. The claim that the TPP was pro-China was one of Trump’s most damaging lies until the 2020 election.

And I think that the Democratic enlightenment on trade goes a long way toward explaining Republican protectionism. In a party that is increasingly defined by being reflexively against whatever the Democrats are for, the fact that “ObamaTrade” was backed by a Democratic president was enough to turn a large part of the party against free trade in general and the TPP in particular.

That wasn’t the only reason, however. It’s true that some Americans have seen their jobs and industries impacted by shifts in trade, but the US has benefitted overall. Even though US manufacturing has continued to grow steadily since the implementation of NAFTA, the trade deal left a sour taste in the mouths of many whose lives were upturned by the sudden shift in the economic tides. This is understandable, but it was neither the first nor the last time that individuals suffered (at least temporarily) as the world changed around them. People who are out of work due to foreign competition make better television than people who are making a good living due to international trade.

International trade is a good thing, even though many of us don’t realize it until we are confronted with the lack of trade. Likewise, trade is an area where I hoped that Joe Biden would follow in Barack Obama’s free-trade footsteps. That has not been the case nearly as much as I’d hoped.

So, I’ve criticized Joe Biden. I disagree with his trade policy in pretty strong terms, but his saving grace is that on trade, as with so many other issues, Donald Trump is worse. Biden kept too many of Trump’s tariffs in place and is implementing some new ones in a targeted fashion, but Trump wants to implement an across-the-board 10 percent tax on imports and his likely Treasury Secretary is plotting ways to intentionally devalue the dollar. Biden’s targeted tariffs are unnecessary and unhelpful but they are better than Trump’s “Leroy Jenkins” approach to trade in which he declares trade wars on adversaries and allies alike.

One of my own rules of thumb is that presidents can’t do a lot by themselves to improve America’s bottom line, but they are always happy to take credit for the strong American economy. The corollary is that presidents can do a lot of things to damage or slow the economy. (Re)starting an unnecessary trade war is one of those things.

Over the past few cycles, Americans have become accustomed to the choice between bad and worse. That’s where we are on the issue of trade as well as the larger picture of the 2024 election.

Choose carefully. Even if you don’t like the Biden economy (which is actually pretty good), the odds are good that if Donald Trump gets his way, you’ll like his economy even less.