By Daniel Griswold
In the spirit of civility, something lacking in Washington these days, let me start with a compliment for my worthy opponent. Ian Fletcher has resisted the temptation to demagogue trade and jobs. He is right that trade and the trade deficit do not cause a net loss of jobs.
Our disagreement centers on what kind of employment trade creates. I show in Mad about Trade, using data from the U.S. Bureau of Labor Statistics, that most of the net new jobs created in the United States in the past two decades have been middle-class service jobs that actually pay more than the average manufacturing job. Like many critics of trade, Ian is wedded to a model based on nostalgia for an industrial past rather than the realities of a modern, high-tech, service-based economy.
The argument for trade really comes down to common sense. As Adam Smith argued, we are better off as individuals and as a nation specializing in what we do best and trading for the rest. Trade allows people, states, and nations to specialize in goods and services that play to our strengths, raising productivity and living standards. For Americans, that means we make more jet aircraft, pharmaceuticals, semiconductors, and sophisticated medical equipment, but fewer shoes, socks, and t-shirts.
Trade raises productivity in other ways, too. Producing for global markets allows greater economies of scale, reducing the final cost of products by spreading the cost of investment, research, and development across larger production runs. Competition from trade spurs innovation, leading to cost savings and new products.
The Economic Freedom of the World Report and numerous other studies confirm that nations open to trade grow faster and achieve higher incomes than those that are closed. If Ian were right, isolated North Korea and Burma would be outperforming free-trade economies such as Chile, Hong Kong, and the Netherlands.
According to Ian, only America is open to trade while our trading partners maintain their barriers. In fact, the same EFoW Report finds that we rank a distant 28th in the world in our “freedom to trade internationally.” Our government maintains high and regressive barriers against imported food, clothing, and shoes, all staple items in a working family’s budget.
Ian deserves credit for being specific about how he wants to change U.S. policy, even if his proposal is wrongheaded. A blanket 30 percent tariff on all imports would raise prices and lower real incomes for millions of American families struggling to pay their bills. But it would also hurt a wide swath of American producers.
More than half of what we import each year is not consumer goods but raw materials, industrial supplies, and capital machinery that help U.S. companies compete. The Fletcher Tariff would force U.S. companies to pay more for energy, steel, memory chips, and other inputs, driving up costs, damaging their competitiveness in global markets, and eliminating some of the better paying jobs in our economy.
Erecting such a high tariff wall would shred our international commitments in the World Trade Organization that were negotiated to avoid destructive trade wars. It would invite retaliation and deprive world markets of the dollars people in other countries need to buy U.S. exports and invest in the U.S. economy. It would cause a plunge in exports along with imports.
The Fletcher Tariff would literally take us back to the 1930s in terms of trade policy. It would undo all the progress we have made in the generations since World War II to promote a more free, open, and integrated world economy.
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Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute, a non-profit, non-partisan think tank in Washington. He is author of the new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, available at Amazon.com and major bookstores. More information about Cato and Mad about Trade can be found at freetrade.org and danielgriswold.com. His email is [email protected].
(For the protectionism view, see Ian Fletcher's response here)
