The US Political Free Trade Vacuum

This article appeared on Daily Telegraph on September 12, 2019.
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One of the most frustrating and lazy clichés of American political commentary is the contention that both Donald Trump and Brexit reflect a political anti-globalisation backlash against free trade.

During the Brexit referendum, both the Leave and Remain campaigns in fact clambered over themselves to argue they were the true free trade champions. Vote Leave promised to rid the UK of EU tariffs and protective regulations, while signing new, expansive free trade deals with large non-EU countries after Brexit. Britain Stronger in Europe argued that leaving the biggest free-trading block in the world was itself, by definition, a wanton act of protectionism. Whatever you think of the veracity of these arguments or the motives of the voters, the UK enjoyed (and still does) front-line political leadership in support of free trade.

The opposite is true in the States. President Trump’s zero-sum obsession with bilateral trade deficits and the ongoing, escalating tariff war with China is well documented. Less commented on is the meekness of the political opposition to his trade policies, both within and beyond his party.

It was hoped that the natural “opposition effect” would see Democrats oppose the China trade war, themselves then taking up the “free trade” mantle. And yet, even as the economic damage of the tariff arms race materialises, and public opinion turns on the president’s policies, most leading Democratic presidential candidates spoil to serve up a different flavour of protectionism.

Psephologically, this free trade leadership vacuum is baffling. Among voters, president Trump has arguably become “the best free trade salesman since Adam Smith”, to coin a phrase from my Cato colleague Dan Ikenson. A recent NBC/Wall Street Journal poll found 64pc of Americans — including majorities of both Democrats and Republicans — now agree that “free trade is good for America”, with 27pc disagreeing. That’s a huge widening since a December 2015 split of 51pc to 41pc. Other polling shows growing support for the belief free trade is good for consumers and jobs too.

This is unsurprising. The escalation of the trade war with China has been rapid and obviously damaging. Trump’s administration has added 25pc tariffs (on top of any existing rates) on three lists of Chinese goods with a combined import value of $250bn (£203bn), rising to 30pc rates on Oct 15. Of most remaining Chinese imports, there’s a 15pc tariff on another $110bn worth of products, with tariffs at the same rate set to be introduced on a further $160bn worth from Dec 15. If an agreement with China ceding to US demands is not reached, Trump threatens to increase these latter categories further.

Both important inputs to production and consumer goods are therefore being hit hard with high taxes. China, of course, has retaliated, targeting important US manufacturing and agriculture goods for export. These burdens and the uncertainties generated by Trump’s volatile actions are now proving a significant drag on the US economy, making a mockery of the president’s previous claims that “trade wars are good and easy to win”.

US business investment has been flagging. Manufacturing data shows declining productivity and rising costs of production, indicative of a supply hit brought about by higher input prices. Studies have found that consumers (including businesses importing intermediate products) are bearing near enough the full costs of most tariffs.

American farmers are now having to be bailed out with subsidies due to the Chinese retaliations, something that they and others resent. So spooked has the administration become about the economic consequences, it is said to be plotting compensatory, broad tax cuts, which would further worsen an already large budget deficit.

Yet facing this open goal of Trump’s making, leading Democratic presidential candidates, at best, prevaricate about putting the ball in the net. Left-wing firebrands Elizabeth Warren and Bernie Sanders have declared themselves open to maintaining tariffs on China. Former vice president Joe Biden, currently leading in the polls, has been better — arguing that like-minded countries should be brought together to put pressure on China to curb its anti-competitive practices. But even he won’t commit unequivocally to removing the elevated taxes.

The truth is that union opposition to free trade coupled with years of anti-globalisation orthodoxy running through the party’s Left has pulled the Democrats sharply in an anti-free trade direction too. Elizabeth Warren likes to consider herself the “wonky” candidate, immersed in policy detail and her trade platform is instructive about where the heart of Democratic thinking currently lies.

Though not tariff heavy, she would also deliver protectionism by demanding “higher standards” on labour market and environmental regulation from US trading partners, even renegotiating existing agreements in that direction. So stringent would her conditions be that, by her own admission, America would currently be barred from signing a free-trade agreement with itself. This reflects assumptions many Democrats hold that trade deals sell out American workers and the environment to nefarious corporations. The stack load of evidence that shows the poor benefit most from the lower prices free trade delivers is ignored.

Though there’s occasional dissent, mainstream “free trading” Republicans are providing little robust resistance to Trump’s trade agenda either, in part because many are hawkish on China for foreign policy reasons. Even Mark Sanford, the former governor of South Carolina who is running against Trump in the Republican primaries, puts public debt as his main economic campaign concern, despite the clear pressing need for prioritising trade leadership.

American voters on the centre-Left and centre-Right, as well as the businesses affected, are simply being starved of a political leader who will promote their free trade preferences. Though British politics is currently a mess, we should be grateful that a broad consensus and vocal champions exist here to support it.

Ryan Bourne

Ryan Bourne holds the R Evan Scharf chair for the public understanding of economics at the Cato Institute.