With President Trump off on his browbeat-our-allies European tour, it’s a good moment to look at how his populist trade politics square with the actuality of international economics.
That (relatively) free trade increases overall international wealth is a widely accepted economic theory —
Since Adam Smith and David Ricardo, free-trade theory has held that a nation increases its wealth by concentrating on producing the goods (and services) it can generate more efficiently than its competitors, and by buying those it can’t from other countries. In such a market-determined, and thus economically efficient, relationship, both nations maximize their income. And their buying power as well: Consumers will be able to purchase goods at the lowest possible price.
If one region or industry suffers because of international trade, dislocated workers can move to another that prospers — or so the theory goes. But as we’ve seen, when a region’s industrial base is eroded, people often don’t migrate to more prosperous regions, for reasons of family or comfort or identity. Nor do workers displaced from lower-skilled occupations necessarily have the ability to work in sectors that require greater skills or education.
The real but amorphous benefits of free trade are experienced nationwide. But if trade-triggered economic disruption is felt particularly keenly within a specific region, its residents will be attracted to candidates who promise a different trade regime, as Trump did. (And, on the left, as Bernie Sanders did; in US politics, opposition to free trade is a place where right- and left-wing populism meet.)
Trump has cloaked his anti-free-trade politics in accusations that prevailing trade agreements or arrangements are unfair to American workers. There’s particular truth to that when it comes to China. (And beyond that, a nation obviously shouldn’t gain a price advantage by fouling the environment or repressing its workers’ organizing rights.)
But the idea that Canada or European Union countries are ruthless trading sharks is misplaced. There will always be areas of trade discontent; many nations, the United States included, subsidize or protect their agricultural sectors, for example. But the fact that one nation runs a trade surplus with another is not ipso facto evidence of unfair trading practices.
Trump’s remedies, meanwhile, create problems all their own. Managed trade — in broad terms, saying if we buy $100 billion of goods from Country X, they must buy an equal amount from us — is a way of forcing that nation to choose products based on something besides price. That counteracts the wealth-maximizing effect of free trade.
A tariff, meanwhile, should be thought of as the federal government forcing Americans as a whole to pay higher prices to benefit a specific group of workers. Slap tariffs on foreign steel, and the US steel industry gains. But companies that use steel now must pay more for it, and thus must charge more for their own products. That translates into reduced sales and lost jobs for those firms, and reduced overall purchasing power for US consumers.
Tariffs, then, are a nonmarket way of picking winners and losers. And to that economic inefficiency, one must add the harm caused when countries retaliate with tariffs on US products.
It hardly need be said that a tariff-protected industry feels less need to become more efficient. Say a tariff of 10 percent puts a tenuous US industry on more stable footing. What happens if and when foreign firms boost productivity or trim costs enough that their products are once again cheaper, the US tariff notwithstanding? Does the United States then raise that tariff further, thereby forcing consumers to pay still higher prices?
Those are just some of the thorny questions that Trump’s trade policies raise.
The president’s rhetoric about trade is simple and pain-free. Don’t expect the consequences to be.Scot Lehigh can be reached at email@example.com. Follow him on Twitter @GlobeScotLehigh