# The (Updated) Case for Free Trade May 19, 2022 • Visual Feature By [Scott Lincicome](https://www.cato.org/people/scott-lincicome) and [Alfredo Carrillo Obregon](https://www.cato.org/people/alfredo-carrillo-obregon) # The (Updated) Case for Free Trade May 19, 2022 • Visual Feature By [Scott Lincicome](https://www.cato.org/people/scott-lincicome) and [Alfredo Carrillo Obregon](https://www.cato.org/people/alfredo-carrillo-obregon) The United States’ longstanding commitment to the multilateral trading system has been increasingly subordinated to inward-looking ideological priorities, including concerns about national security and the people and communities left behind in our modern and globalized world. ![The official Presidential portrait of John F. Kennedy](/sites/cato.org/files/styles/aside_mobile/public/2022-05/jfk.png?itok=7ad8m3La) “Lowering of our tariffs will provide an increased flow of goods for our American consumers. Our industries will be stimulated by increased export opportunities and by freer competition with the industries of other nations for an even greater effort to develop an efficient, economic, and productive system. The results can bring a dynamic new era of growth.” **John F. Kennedy** 35th president ![Ronald Reagan](/sites/cato.org/files/styles/aside_mobile/public/2022-05/reagan.png?itok=KxOxA1AW) “Our goal must be a day when the free flow of trade, from the tip of Tierra del Fuego to the Arctic Circle, unites the people of the Western Hemisphere in a bond of mutually beneficial exchange.” **Ronald Reagan** 40th president ![Barack Obama](/sites/cato.org/files/styles/aside_mobile/public/2022-05/obama-removebg-preview.png?itok=FmWqYUcr) “We forged the Trans-Pacific Partnership to open markets, and protect workers and the environment, and advance American leadership in Asia. It cuts 18,000 taxes on products made in America which will then support more good jobs here in America. With TPP, China does not set the rules in that region; we do.” **Barack Obama** 44th president ![Donald Trump](/sites/cato.org/files/styles/aside_mobile/public/2022-05/trump.png?itok=hpbh1fMR) “We’ve made other countries rich while the wealth, strength, and confidence of our country has disappeared over the horizon. One by one, the factories shuttered and left our shores, with not even a thought about the millions upon millions of American workers left behind. The wealth of our middle class has been redistributed across the entire world. But that is the past.” **Donald J. Trump** 45th president ![Joe Biden](/sites/cato.org/files/styles/aside_mobile/public/2022-05/biden-removebg-preview.png?itok=PPEYYCpE) “We’ll buy America to make sure everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end. All of it. All of it.” **Joe Biden** 46th president ![Statue of Adam Smith](/sites/cato.org/files/styles/aside_mobile/public/2022-05/adam_smith_statue_1-removebg-preview.png?itok=jn_qHKbx) *“\[Without trade restrictions\] the obvious and simple system of natural liberty establishes itself of its own accord. Every man… is left perfectly free to pursue his own interest his own way.”* Adam Smith *The Wealth of Nations*, vol. 4, chap. 9 This newfound skepticism is misguided: the economic, political, and moral case for free trade is as strong today as it was when Adam Smith penned *The Wealth of Nations* almost 250 years ago. The ## Economic Case ![A political cartoon showing a busy free trade shop next to a protection shop with Abraham Lincoln lecturing shop owner on rates.](/sites/cato.org/files/styles/aside_mobile/public/2022-05/free_trade_cartoon.png?itok=Jt-A2lQ1) Trade has delivered innumerable benefits to U.S. consumers, producers (even in manufacturing), and workers. It enables the U.S. economy to harness its strength in advanced manufacturing and skill‐​intensive services and fuels the “creative destruction” that breeds innovation and raises living standards. Contrary to conventional wisdom, imports are not a drag on the U.S. economy or the price we pay to sell goods and services abroad. In fact, rising imports coincide with stronger economic growth. [The payoff to the United States](https://www.piie.com/publications/policy-briefs/payoff-america-globalization-fresh-look-focus-costs-workers) from expanded trade between 1950 and 2016 was $2.1 trillion, increasing GDP per capita by around $7,000 and GDP per household by around $18,000. Chinese imports into the United States during the 2000s [generated](https://cep.lse.ac.uk/pubs/download/dp1642.pdf) hundreds of thousands of dollars in consumer benefits—the equivalent of giving every American “[$260 in extra spending](https://www.stlouisfed.org/on-the-economy/2017/may/impact-chinese-imports-us-jobs) per year for the rest of their lives.” ![FreeTradeEQ: DV2F1 - U.S. real GDP and real imports, 1994–2020](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/77e76546-b6e3-491b-82d6-fdd9d1f0c1d6.jpg) Higher imports are also correlated with higher private-sector employment in the United States, as numerous industries and workers depend on trade. ![FreeTradeEQ: DV2F2 - U.S. real imports as and annual private sector employment, 1994–2020](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/e949f728-0a8e-418c-a115-3f2c90989009.jpg) Rising imports have also accompanied increased worker earnings. ![FreeTradeEQ: DV2F3 - U.S. median weekly usual earnings and real imports, 1994–2020](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/4d22f184-7720-4321-9cad-6533dc7a5d48.jpg) To see how the benefits of trade play out in reality, let’s look at a signature American product: **The iPhone** ![Two iPhones](/sites/cato.org/files/styles/pubs_2x/public/2022-04/Two_iPhones.png?itok=UKJKTyWE) The iPhone is a truly global product: it is designed in Cupertino, California but contains components made in numerous countries (including the United States) and is assembled and shipped from China and other low-cost assembly countries such as Vietnam. ![Alt Opt: FreeTradeEQ: DV3F1 - IPhone Story - Figure 1](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/312d26d5-ef76-44ec-ad61-c98ec3a2f4b1.jpg) But while official U.S. import statistics treat the full value of an iPhone that is assembled in China as originating in China, it is *American companies* that actually earn the lion’s share of an iPhone’s production cost… ![FreeTradeEQ: DV3F2 - IPhone Story - Figure 2](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/c21f3632-aba8-4bb1-a353-93ed4578adef.jpg) …and final sales value. ![FreeTradeEQ: DV3F3 - IPhone Story - Figure 3](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/17d995da-a630-4302-ac63-f71c4beb7326.jpg) Meanwhile, common claims that trade has destroyed American manufacturing industries and workers have been wildly oversold. The U.S. manufacturing sector remains a global leader, and common signs of deindustrialization—manufacturing’s declining number of jobs and share of the economy—are happening in all industrialized nations, even China. The ## Geopolitical Case ![An image of the 1949 GATT Book](/sites/cato.org/files/styles/aside_3x/public/2022-04/GATT%20Booklet.png?itok=DEsSZexq) Trade has long been a pillar of national and global security. Having seen how rival economic blocs helped foment two world wars, the founders of the multilateral trading system, the General Agreement on Tariffs and Trade and the World Trade Organization (GATT/WTO), believed that countries that traded with each other would be less prone to engaging in geopolitical competition and, ultimately, armed conflict. ![Cordell Hull sitting in a chair at a hearing](/sites/cato.org/files/styles/pubs_2x/public/2022-04/cordell_hull.jpg?itok=EHPOy4CE) ##### “When the war came in 1914… I saw that you could not separate the idea of commerce from the idea of war and peace… I thereupon came to believe that if we could increase commercial exchanges among nations over lowered trade and tariff barriers and remove international obstacles to trade, we would go a long way toward eliminating war itself.” **Cordell Hull** Secretary of state in the Roosevelt administration Since that time, numerous studies have confirmed these intuitions and counter recent arguments that economic isolationism or “decoupling” from China would better serve American foreign policy interests than multilateral engagement. ![FreeTradeEQ: Table 1 - Empirical studies on trade and peace and their results](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/a97894b5-1f6b-4554-8825-a692d510ab8c.jpg) ![Vladimir Putin meets with advisors following Russia's Ukraine invasion](/sites/cato.org/files/styles/aside_3x/public/2022-04/putin_advisors-min.jpg?itok=WsqB7Epw) By increasing commercial interdependence, trade encourages governments to avoid war or other large‐​scale armed conflicts (which could impose substantial economic losses). And even when armed conflict does unfortunately occur, the economic damage that global sanctions, either public or private, can inflict upon an interconnected aggressor nation can serve as a warning to other governments that might also have extraterritorial ambitions. **Background image:** Russian President Vladimir Putin chairs a meeting on economic issues at the Kremlin in Moscow on February 28, 2022. A defiant Russia said on February 28 it could ride out Western sanctions over its invasion of neighboring Ukraine as Putin huddled with officials to discuss the economic turmoil of the war. (Photo by Alexey Nikolsky / Sputnik / AFP) ![Headline: "The Cost of Being Close to Moscow"](/sites/cato.org/files/styles/pubs_2x/public/2022-05/cost_of_being_close_to_moscow.png?itok=6u_PZMyG) ![Headline: "Free Trade Still Promotes Peace, Despite Putin's Reckless War"](/sites/cato.org/files/styles/pubs_2x/public/2022-05/free_trade_promotes_peace.png?itok=VoiDIQb1) ![Headline: "The List of Foreign Companies Pulling Out of Russia Keeps Growing"](/sites/cato.org/files/styles/pubs_2x/public/2022-05/companies_pulling_out_russia.png?itok=MeA3s_WG) ![Headline: "Biden Bans Russian Oil Over 'Vicious War'"](/sites/cato.org/files/styles/pubs_2x/public/2022-05/biden_bans_russian_oil.png?itok=4zK7n7V5) The ## Moral Case ![Illustration of an 1800s shipyard](/sites/cato.org/files/styles/aside_mobile/public/2022-05/GettyImages-1166813353.jpg?itok=vuAUVGKV) As Adam Smith wrote, “Man is an animal that bargains.” We have built communities, cultures, and societies around commerce. When people can pursue their self‐​benefit freely through trade, society at large benefits. ![Call center in India](/sites/cato.org/files/styles/aside_mobile/public/2022-05/CallCenterIndia.jpg?itok=3FwxijXg) The morality of trade doesn’t stop at the water’s edge: trade, and American leadership in reducing barriers to trade, has produced immeasurable benefits for the world’s poorest people. **“[Trade clearly has brought overall gains to households and is critical to the reduction of poverty](https://openknowledge.worldbank.org/bitstream/handle/10986/35552/9781464817045.pdf?sequence=2&isAllowed=y),** but labor market and consumption gains have been concentrated in some regions and groups.” \[Emphasis ours\] ![FreeTradeEQ: DV5F1 - Declining Poverty - Figure 1](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/131618e4-c950-4105-b124-c5af02d0f476.jpg) Clear economic benefits—and the prospects for even more—have led many developing countries to lower their trade barriers unilaterally: “\[A\]s countries have turned away from import substitution policies toward export promotion, they have discovered that they become more competitive when they can join global supply chains by reducing imported input costs. …Given the preferences of global supply chain operators, [more intense competition to attract foreign investors has promoted liberalization](https://www.piie.com/sites/default/files/documents/pb21-6.pdf).” Sound Off SO, IT’S REALLY MY HONOR TO START THIS PROCESS. IT’S GONNA BE A VERY FAIR PROCESS. IT’S GONNA BE VERY FAIR TO OTHER COUNTRIES, ESPECIALLY THOSE THAT TREAT US WELL. AND, WE LOOK FORWARD TO IT AND WE LOOK FORWARD TO HAVING LOTS OF MILLS OPENING UP, LOTS OF PLANTS OPENING UP, BOTH STEEL AND ALUMINUM AND OTHER THINGS. WE’LL BE DOING OTHER THINGS, VERY POSITIVE THINGS. BUT YOU ARE GREAT PEOPLE. WOULD YOU LIKE TO TAKE A PICTURE IN THE OVAL OFFICE? I ASSUME YOU’VE ALL BEEN MANY TIMES IN THE OVAL OFFICE. COME ON. LET’S GO AND DO THAT. LET’S GO AND DO THAT. **STEVE MNUCHIN:** SIGNING? SIGNING? **PRESIDENT TRUMP:** YES, I’M GOING TO DO THAT. WE’LL GO INTO THE OVAL OFFICE. WE’RE GOING TO SIGN THIS UP. WE’LL GO INTO THE OVAL OFFICE AND HAVE A PICTURE, OKAY? OKAY. THANK YOU. ***\*Clapping\**** ***\*Cameras snapping photos\**** **PRESIDENT TRUMP:** COME ON AROUND HERE, FOLKS. ***\*Cameras snapping photos\**** **PRESIDENT TRUMP:** STEEL. **\*Clapping\*** Furthermore, protectionism is **immoral** because it elevates protected entities’ welfare not merely above all others’ welfare but at their direct expense—only because the beneficiaries are politically more important than the victims. Steel tariffs are a good example. The ## Case *against* Protectionism The lone alternative to free trade, protectionism, has repeatedly proven to impose far higher costs, generate far fewer benefits, and foster far more political dysfunction. Tariffs, quotas, buy‐​local mandates, and other protectionist policies harm most Americans, fail to reduce trade barriers abroad (and may invoke retaliation), and engender political dysfunction. Usually, protected firms are not revived but instead return to the government for more protection. **The average cost of mid- to late- 20th century protectionism:** $620,000 per job created or saved. **Several government and independent studies have found that protectionist policies failed to revitalize industries during the mid- to late-20th century. And even for protectionist “success stories,” such as Harley-Davidson motorcycles and semiconductors, tariffs had little to do with, and even hindered, the success of the relevant industries. Instead, protectionism often persists only because of protected industries’ political power.** **Big Steel lobbying (2021):** $10,673,122 Nucor Corporation, Cleveland Cliffs, U.S. Steel, American Iron & Steel Institute, United Steelworkers Union, and various other steel producers combined. **Jones Act lobbying (2021):** $9,704,282 Jones Act vessel operators, U.S. shipbuilders, maritime unions, and Jones Act advocacy groups combined. **Big Sugar lobbying (2021):** $11,743,273 American Sugar Alliance, American Crystal Sugar, U.S. Beet Sugar Association, Florida Sugar Cane League, Fanjul Corp, and various other U.S. sugar growers and producers combined. “[Smoot-Hawley set high tariffs on hundreds of products](https://www.wsj.com/articles/SB10001424127887324735104578123523795505336). In the decades since 1930, many of these rates have been reduced to more reasonable levels or eliminated altogether. However, footwear tariffs have remained largely untouched. The thriving U.S. shoe-manufacturing sector of the 1930s is long gone, but what remains are protective tariff rates of 37.5%, 48%, and some as high as 67.5%.” Similarly, protectionism has failed to revive the primary metals, shipbuilding, and sugar industries in the United States. ![FreeTradeEQ: DV6F1 - Declining Poverty - Figure 1](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/68d79f91-ec62-48bd-b6d2-0c3be0186014.jpg) Protectionist policies also undermine national security because they weaken the country’s manufacturing sector (making the nation less resilient), reduce economic growth, and create distortions that can divert resources from sectors that are essential to national security. And even when protectionist policies are adopted for national security purposes, they have notoriously failed to bolster it. ![FreeTradeEQ: Table 2 - Sample of protectionist failures](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/cdf5d3da-4335-42ba-b291-ffcafc633f61.jpg) In sum, international trade’s disruptions, while real, are **far outweighed by its benefits for both the country and the world.** Common criticisms wither under the facts and can’t obscure the inefficacy of free trade’s lone alternative, protectionism. Seismic shifts in **industrial production**, the **rise of China**, and a **global pandemic** surely require new and better U.S. policies, but abandoning free trade will not only fail to fix those problems, but also leave us poorer and less secure in the process. ![Shipping containers in Shanghai China](/sites/cato.org/files/styles/aside_3x/public/2022-04/shipping%20containers%20in%20shanghai-min.jpg?itok=K3r8jehI) Next in this series: [Why China Does Not Undermine the Case for Free Trade](https://www.cato.org/policy-analysis/updated-case-free-trade?au_hash=OzpzJYrsGIwPAYT0C93nwFaEBLIPZPJVh_reqWpMqmk#china-does-not-undermine-case-free-trade) **The “China Shock”: Myths and Realities** --- **Trump’s Trade War: Not So Good and Easy to Win** --- **China’s Real Strengths… *and* Weaknesses** --- **A Better Way to Address the China Challenge** ![pa925-cover.jpg](/sites/cato.org/files/styles/promo_block_book_cover_1x/public/2022-04/pa925-cover.jpg?itok=mebGC79n) ##### Full Policy Analysis ### [The (Updated) Case for Free Trade](https://www.cato.org/policy-analysis/updated-case-free-trade) Free trade continues to have strong economic, geopolitical, and moral justifications, and its protectionist alternative imposes far higher costs while making us all poorer and less secure in the process. [Read the full Policy Analysis](https://www.cato.org/policy-analysis/updated-case-free-trade) Suggested Reading Bacchus, James. “[Biden and Trade at Year One: The Reign of Polite Protectionism](https://www.cato.org/policy-analysis/biden-trade-year-one).” Cato Institute Policy Analysis no. 926, April 26, 2022. --- Bacchus, James. “[Trade is Good for Your Health](https://www.cato.org/policy-analysis/trade-good-health-freeing-trade-medicines-other-medical-goods-during-beyond-covid).” Cato Institute Policy Analysis no. 918, June 30, 2021. --- Bacchus, James, and Inu Manak. “[Free Trade in Environmental Goods Will Increase Access to Green Tech](https://www.cato.org/free-trade-bulletin/free-trade-environmental-goods-will-increase-access-green-tech).” Cato Institute Free Trade Bulletin no. 80, June 8, 2021. --- Barattieri, Alessandro, and Matteo Cacciatore. “[American Protectionism and Construction Materials Costs](https://www.cato.org/briefing-paper/american-protectionism-construction-materials-costs).” Cato Institute Briefing Paper no. 133, February 9, 2022. --- Grabow, Colin. “[Rust Buckets: How the Jones Act Undermines U.S. Shipbuilding and National Security](https://www.cato.org/policy-analysis/rust-buckets-how-jones-act-undermines-us-shipbuilding-national-security).” Cato Institute Policy Analysis no. 882, November 12, 2019. --- Grabow, Colin, Inu Manak, and Daniel J. Ikenson. “[The Jones Act: A Burden America Can No Longer Bear](https://www.cato.org/publications/policy-analysis/jones-act-burden-america-can-no-longer-bear).” Cato Institute Policy Analysis no. 845, June 28, 2018. --- Ikenson, Daniel J. “[Tariffs by Fiat: The Widening Chasm between U.S. Antidumping and the Rule of Law](https://www.cato.org/policy-analysis/tariffs-fiat-widening-chasm-between-us-antidumping-policy-rule-law).” Cato Institute Policy Analysis no. 896, July 16, 2020. --- Ikenson, Daniel J, and Simon Lester. “[The Pandemic Does Not Justify Protectionism or Deglobalization](https://www.cato.org/pandemics-policy/pandemic-does-not-justify-protectionism-or-deglobalization).” Cato Institute Pandemics and Policy, September 15, 2020. --- Lincicome, Scott. “[Doomed to Repeat It: The Long History of America’s Protectionist Failures](https://www.cato.org/policy-analysis/doomed-repeat-it-long-history-americas-protectionist-failures).” Cato Institute Policy Analysis no. 819, August 22, 2017. --- Lincicome, Scott. “[Manufactured Crisis: ‘Deindustrialization,’ Free Markets, and National Security](https://www.cato.org/publications/policy-analysis/manufactured-crisis-deindustrialization-free-markets-national-security).” Cato Institute Policy Analysis no. 907, January 27, 2021. --- Lincicome, Scott. “[Should the U.S. Government Subsidize Domestic Chip Production?](https://www.cato.org/commentary/should-us-government-subsidize-domestic-chip-production)” *Wall Street Journal*, February 27, 2022. --- Lincicome, Scott. “[Testing the ‘China Shock’: Was Normalizing Trade with China a Mistake?](https://www.cato.org/policy-analysis/testing-china-shock-was-normalizing-trade-china-mistake)” Cato Institute Policy Analysis, no. 895, July 8, 2020. --- Lincicome, Scott. “[The Pandemic Does Not Demand Government Micromanagement of Supply Chains](https://www.cato.org/pandemics-policy/pandemic-does-not-demand-government-micromanagement-global-supply-chains).” Cato Institute Pandemics and Policy, February 24, 2021. --- Lincicome, Scott, and Huan Zhu. “[Questioning Industrial Policy](https://www.cato.org/white-paper/questioning-industrial-policy).” Cato Institute White Paper, September 28, 2021. --- Lincicome, Scott, and Inu Manak. “[Protectionism or National Security? The Use and Abuse of Section 232](https://www.cato.org/policy-analysis/protectionism-or-national-security-use-abuse-section-232).” Cato Institute Policy Analysis no. 912, March 9, 2021. ---