Donald Trump’s call for trade protectionism has him doing well in Indiana, where primary voters will hit the polls on Tuesday.
The Donald wants to build a literal wall across the U.S. border with Mexico, which would be as offensive as it is ineffective.
Just as bad is the figurative wall he advocates for cross-border trade and investment flows: He wants to stop trade coming into the United States and investment going out, through high tariffs on imports and penalties for U.S. companies who decide to operate abroad.
The effect would be to harm the economic interests of all Americans, through reduced competition, higher prices and lower economic growth.
Whether Trump could achieve any of these goals as president is unclear. But what is clear is that if he could, his “de-globalization” and “re-nationalization” of the world economy would make everyone worse off.
Trump’s position seems to be driven mainly by a handful of anecdotes about Ford, Carrier and Nabisco having operations in Mexico. Something about these traditional American brands being in Mexico bothers him.
But in taking this position, Trump is pretending not to know how modern companies operate. He could learn a lesson from his own companies, who regularly invest money in places other than the United States.
For example, Trump has invested in a number of U.K. golf courses. Should he have invested in the United States instead? If national pride were his only goal, then perhaps yes. But if what he cared about is running a good business, then no.
Like all companies, Trump should invest wherever it makes the most economic sense. And if other U.S. companies want to stay competitive, that’s what they need to do as well. Don’t build a golf course in America simply because you are an American if there is a better opportunity in Scotland.
The same goes for other products and services, including cars, air conditioners and cookies. Companies should operate and sell where it makes economic sense to do so.
To illustrate this point, one only needs to look at Ford, one of the companies Trump frequently mentions. Ford is a global company, making and selling cars in countries all over the world. Opening a new factory in Mexico is not a sign of abandoning its “homeland.” Rather, Ford is trying to serve the whole world. When Ford produces and sells in Mexico, that is good for American workers back home, who benefit when Ford grows and who would like to see Ford stay competitive.
Furthermore, flows of foreign investment in the other direction demonstrate the absurdity of Trump’s objections to free trade and investment flows. In the past several decades, many foreign-owned companies have opened factories in the United States. BMW in South Carolina, Airbus in Alabama, to name just a couple.
In theory, Trump could shut down the flow of U.S. investment that goes abroad. In doing so, however, he would almost certainly aggravate our trading partners and trigger limits on foreign investors setting up shop in the United States.
So yes, it is technically possible to build an economic wall around the United States, through various regulatory and trade interventions. But such a wall is a terrible idea. The effect would be to harm the economic interests of all Americans, through reduced competition, higher prices and lower economic growth.
We could have a world where the U.S. produces for Americans, and Koreans produce for Koreans, and Germany produces for Germans, and so on. But why would we want that?
In fact, a wall may not even be the best metaphor here. In Trump’s world, Americans would be cowering in an economic bunker. The rest of the world is increasingly open to trade and investment flows.
China, which is subject to so much criticism for its trade practices, is pushing new free trade agreements with many of its trading partners. Perhaps because of the size of the United States, there is a tendency among some to believe we can and should produce every product and service here, and not trade with others.
But even if we can do this, we definitely should not. With the 6.8 billion person global market (excluding the United States), the rest of the world is poised for an efficiency surge, as countries enhance their economic ties.
If the United States, by contrast, retreats to a bunker, trying to pretend that the rest the world does not exist, we will miss those economic gains, and instead face a future of economic stagnation. That is the direction Trump would take us.