The Power of Independent Thinking

←  NEWSROOM



Stay Connected
Get the latest updates straight to your inbox.









Commentary

The Trump Policy that Will ‘Shrink the Economy and Make the US Poorer’



President-elect Donald Trump’s anti-trade rhetoric has proven that bad economics can make good politics. Fortunately, after Mr. Trump assumes office his trade policies likely will be better than his campaign rhetoric.

Many factors contributed to Trump’s victory. His upset wins in the so-called ‘Rust Belt’ states, which are typically Democratic strongholds, can be linked to his promise to revive U.S. manufacturing by restricting “unfair” trade with Mexico, China and other countries.

This promise resonated well with union workers. Trump won the union vote in Ohio, tied Clinton among union households in Michigan, and narrowly lost the union vote in Wisconsin by 8 percentage points – a huge improvement over 2012 Republican candidate Mitt Romney.

The reason Mr. Trump’s rhetoric on trade resonated with so many blue collar voters is because they believe a popular fallacy: that foreign trade destroys U.S. jobs.

According to exit polls, 50 percent of voters in Wisconsin and Michigan agreed with the notion that international trade kills American jobs. Similarly, 53 percent of Pennsylvanian voters and 48 percent of Ohio voters bought into this fallacy. Among the voters in the four states who expressed agreement with the trade fallacy, Trump’s support ranged from 59 percent in Michigan to 67 percent in Ohio.

Yet, as any trade economist understands, the truth is that trade neither creates nor destroys jobs.

When imports increase, jobs frequently are lost in domestic industries that compete with those imports. This is all that many voters see. What they don’t realize is that these very same imports create jobs elsewhere in the economy.

More than half of all imports are intermediate components or raw materials that go into the production of other goods and services. When international trade makes these materials and parts cheaper and more widely available, the domestic industries that use these items become more competitive, enabling them to sell more products, which results in expansion and increases in jobs.

Similarly, when foreigners receive dollars by exporting to the United States they’re able to buy more, which increases the market for U.S. exports. This, too, powers economic expansion and boosts employment in U.S. export industries.

International trade changes the mix, not the number, of jobs in the United States. In fact, the classic economic case for free trade rests on the reshuffling of jobs. The reshuffling allows American workers to perform the tasks at which they are relatively more productive, while foreigners do the same.

Exit polls showed that only a small minority (fewer than 13 percent) of voters in the Rust Belt battleground states understood that international trade has no net effect on the number of jobs. Candidate Trump benefited from their ignorance.

If Mr. Trump runs for re-election in four years, voters are likely to care less about his rhetoric and more about the state of the economy. The protectionist policies he promoted during the campaign would shrink the economy and make the United States poorer.

President Trump will have to choose between candidate Trump’s promises. He can embrace international trade and contribute to making America great. Or he can follow his protectionist rhetoric at the expense of American greatness. But he can’t have it both ways.


Benjamin Powell is a Senior Fellow at the Independent Institute, Director of the Free Market Institute at Texas Tech University. He Independent Institute books include The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy, Housing America: Building out of Crisis, and Making Poor Nations Rich.


New from Benjamin Powell!
THE ECONOMICS OF IMMIGRATION: Market-Based Approaches, Social Science, and Public Policy
Few topics in current affairs are as contentious as immigration. Yet despite the controversies, social scientists who study immigration largely agree about its effects, whatever differences they may have about how a nation should change its policies. Their findings, however, have been buried in academic journals accessible only to other scholars—until now. With the publication of The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy, edited by Benjamin Powell, readers can now easily access the substance of the vast scholarly literature about a subject that touches millions of lives.







  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org