Rebuilding Conservatism #2: Free Trade Rocks and Protectionism Sucks

 by Ray Keating

The Keating Files – December 10, 2020

 

(Editor’s Note: Much damage has been inflicted on conservatism, conservative thought, and the conservative movement in recent years. The effort to heal and rebuild conservatism promises to be a difficult, but necessary undertaking. The Keating Files will regularly weigh in to help that process. This is our second “Rebuilding Conservatism” column, and it comes from the opening to my book Free Trade Rocks! 10 Points on International Trade Everyone Should Know.)

 

As an economist, let me make a couple of things clear when it comes to international trade. First, protectionism sucks. Second, free trade rocks. I know – not exactly highly technical stuff from the economics profession. But both points are true. So, let’s get started backing up these bold claims.

We’ll start by talking taxes. Most politicians understand that people don’t like to pay taxes. However, many folks don’t seem to get all that bothered when someone else gets hit with a bigger tax bill. There’s an old ditty that dates back to the early 1930s that goes, “Don’t tax you. Don’t tax me. Tax the guy behind the tree.”

 

It’s pretty standard fare for politicians to push the idea of taxing others – especially higher taxes on high-income earners or the “rich” – in order to then promise government goodies for everybody else presumably paid for with the resulting additional revenues. It’s class warfare, and it happens to be lousy economics.

 

Another group sometimes targeted for higher taxes is foreigners. Indeed, higher taxes can become an even easier sell if they are called tariffs – that is, taxes on imports – and politicians mistakenly or misleadingly argue that other countries wind up paying those tariffs.

 

While higher tariffs have popped up here and there during the post-World-War-II period, they largely were exceptions in a long-run move toward lower tariffs and freer trade. Both politicians and the public seemed to recall the role that high tariffs played in igniting the Great Depression (more on this later). But, of course, in politics, lessons eventually get unlearned. 

 

The first glimmers of tariffs making a serious comeback arrived via the losing presidential efforts of Pat Buchanan and Ross Perot in the 1990s – Buchanan in 1992, 1996 and 2000, and Perot in 1992 and 1996. Later, during his 2008 presidential campaign, Barack Obama struck a hostile tone toward free trade, and then in 2016, Donald Trump made protectionism a centerpiece of his run for the White House. 

 

Unlike Obama, who largely backed off his anti-trade campaign rhetoric after taking office, President Trump did the exact opposite. He pushed protectionist measures with an array of U.S. trading partners, including Mexico, Canada, China, South Korea, and Japan. One selling point by President Trump as he ramped up a trade war with China was that China, or Chinese businesses, would pay the tariffs he was imposing, not U.S. consumers or businesses.

 

In reality, the cost of higher taxes always spreads well beyond the groups targeted. For example, increased taxes on upper-income earners have negative effects on the private investment that is essential for economic, income and job growth. So, lots of people and the economy tend to suffer as resources are siphoned away from productive, private enterprises, and handed over to elected officials who dole out resources according to political incentives. As for tariffs on goods from China, for example, they wind up being paid by U.S. consumers and businesses who face increased costs and reduced choices.

 

There is the added political factor that consumers, at least, tend not to see the direct impact of tariffs clearly. In that way, tariffs are like regulations imposed by government. The effects are significant, but they are dealt with by others, such as by the businesses that must wrestle directly with increased costs. Compare these more-hidden costs to when government takes money directly out people’s paychecks via an income tax increase, jacks up property tax bills, or hits consumers with higher sales taxes at the cash register. Workers and consumers – and yes, voters – see those costs quite clearly, and respond accordingly.

 

When it comes to tariffs, one might change that old-time ditty to: “Don’t tax you. Don’t tax me. Tax the guy across the sea.” In reality, we all pay the price of higher tariffs in assorted ways.

 

But in getting at the basics of what free trade is, five fundamentals need to be summed up at the outset as to why free trade rocks!

 

First, and this obvious point is often missed, it’s critical to keep in mind that governments, for the most part, do not trade; instead, individuals and businesses do. There’s no difference between trades taking place across town, across the nation or around the globe. Trade happens between individuals, between businesses, and between individuals and businesses. Those trades would not occur if the parties involved were not made better off by such voluntary transactions. Trade, by definition, makes people better off.

 

Second, thanks to freer trade, competition is expanded and resources are allocated more efficiently, and therefore, consumers experience a wider choice of products and lower prices. 

 

Third, entrepreneurs, businesses and workers experience greater opportunity with freer trade, as more markets are open to their goods and services.

 

Fourth, as individuals and businesses specialize in those areas where they have a comparative advantage – that is, their largest advantage – and then trade with others, economic, productivity and income growth are boosted.

 

Fifth, international trade is increasingly important for the U.S. economy and to U.S. economic growth. Again, we’ll explore this more in an upcoming chapter, but for now, it’s simply worth noting that in 1955, real total trade (that is, exports plus imports) equaled only 6.3 percent of U.S. GDP. As of 2018, total trade had risen to 32.3 percent of the economy.

 

To sum up, free trade reduces costs through enhanced competition and lower trade barriers; expands choices and lowers prices for consumers; keeps U.S. firms competitive; opens new markets and opportunities for U.S. goods and services; expands economic freedom; and feeds economic growth.

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Other articles in the Rebuilding Conservatism Series…

 

“Rebuilding Conservatism #1: What is Conservatism?”

 

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Ray Keating is a columnist, novelist, economist, podcaster and entrepreneur.  You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York  from Amazon or signed books  at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

 

Also, choose your 2021 TO DO List planner today, and enjoy the pre-order sale! Perfect for you and as Christmas gifts. Choose between The Lutheran Planner 2021: The TO DO List Solution, The Film Buff’s Planner 2021: The TO DO List Solution, and The Disney Planner 2021: The TO DO List Solution. Get more information at https://raykeatingonline.com/t/todolistsolutionplanners

 

The new book Vatican Shadows: A pastor Stephen Grant Novel is the 13ththriller/mystery in the Pastor Stephen Grant series. One of the best ways to enjoy Ray Keating’s Pastor Stephen Grant thrillers and mysteries is to join the Pastor Stephen Grant Fellowship! For the BEST VALUE, consider the Book of the Month Club.  Check it all out at https://www.patreon.com/pastorstephengrantfellowship

 

Also, tune in to Ray Keating’s podcasts – the PRESS CLUB C Podcast  and the Free Enterprise in Three Minutes Podcast  

 

Check out Ray Keating’s Disney news and entertainment site at www.DisneyBizJournal.com.

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Happy Birthday, President Reagan! Thanks for Being a Leader on Free Trade

by Ray Keating

The Keating Files – February 6, 2020

President Ronald Reagan’s birthday is February 6. On this date, let’s take note that President Reagan was a free trader, given that so many in the political arena today, both Republicans and Democrats, need reminding of why free trade helps everyone.

For example, in a November 17, 1988, address, Reagan said: “As we pursue global trade negotiations, the United States believes that the future belongs to those who lower trade barriers. These are the countries that will be in the forefront of technology. These are the countries that will see their living standards rise most quickly. And these are the countries that will lead the world in the years ahead. We can go forward into the future or slip back into the protectionist past.”

And as quoted from another speech in FREE TRADE ROCKS!, Reagan said: “Part of the difficulty in accepting the good news about trade is in our words. We too often talk about trade while using the vocabulary of war. In war, for one side to win, the other must lose. But commerce is not warfare. Trade is an economic alliance that benefits both countries. There are no losers, only winners. And trade helps strengthen the free world.” 

Learn more about the free trade that Reagan supported in my book FREE TRADE ROCKS! 10 POINTS ON INTERNATIONAL TRADE EVERYONE SHOULD KNOW.

Get paperbacks or Kindle editions of FREE TRADE ROCKS! at https://www.amazon.com/dp/168841245X

Signed books are available at https://raykeatingonline.com/products/freetrade

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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.

Yes, Free Trade is a Moral Good

by Ray Keating

The Keating Files – January 16, 2020

Book Excerpt from Free Trade Rocks! 10 Points on International Trade Everyone Should Know by Ray Keating

Throughout much of the history of mankind, life for most people was a daily struggle for survival. That changed markedly as the institutional foundations of the market economy were established and spread – with that process continuing today. Those institutions include establishing and protecting private property rights; competition; the rule of law; setting up tax and regulatory policies that incentivize entrepreneurship, investment and innovation; consumer sovereignty; and the freedom to trade. That freedom to trade, once again, pertains to transactions in the same town or village, throughout nations, and across international borders.

So, let’s review key points making clear the moral superiority of free trade over protectionism.

First, there is an unmistakable moral component to establishing and expanding an economic system – that is, the market economy – essential to lifting people out of poverty; to the wealth creation that enables, for example, improved food production, housing, health care and overall quality of life; to greater leisure time; to a cleaner environment; and to incentivizing the private investment, innovation and exchange that allow for greater specialization, productivity and income growth. Free trade is central to the entire market process, and the free market is essential to economic and income growth, including poverty relief.

Second, the freedom to trade and exchange as one sees fit is a basic economic freedom that makes clear the value of each individual, with that same freedom serving to spur economic growth forward. Decades ago, my eighth grade teacher noted that the United States was the most prosperous country on the planet, yet she had no idea why that was the case. She failed to understand that it fundamentally was about economic freedom, that is, individuals being free to spend, save and invest their earnings as they see fit; free to start up, build and invest in businesses; free to gain education and skills needed to achieve their goals; and free to improve their lives by trading with whomever they choose.

Third, free trade points to individuals being able to improve their lives thanks to greater choices and lower prices in terms of consumption; thanks to enhanced productivity; thanks to a diffusion of technological advancements; and thanks to expanded opportunities by serving customers not only in their own town, state or country, but around the world. In contrast, protectionism is about the politically powerful influencing government in order to gain special treatment, such as U.S. steelmakers looking to be protected via tariffs or quotas. Such cronyism means that voluntary trade is being replaced by political dictates. It means that political power is reducing individual opportunity. When a country moves away from free trade, the people with lobbyists and political connections make out better than – and at the cost of – the average person.

The Peterson Institute for International Economics found that benefits from expanded trade to the United States from 1950 to 2016 amounted to $2.1 trillion (measured in 2016 dollars), with per capita GDP and GDP per household growing by $7,014 and $18,131, respectively, with gains accruing disproportionately “to poorer households.”

In terms of a global perspective, the World Bank and the World Trade Organization jointly published a report titled “The Role of Trade in Ending Poverty.” A key message in that study was:

People measure the value of trade by the extent to which it delivers better livelihoods, through higher incomes, greater choice, and a more sustainable future, among other benefits. For the extreme poor living on less than $1.25 a day, the central value of trade is its potential to help transform their lives and those of their families. In this way, there is no doubt that the integration of global markets through trade openness has made a critical contribution to poverty reduction. The number of people living in extreme poverty around the world has fallen by around one billion since 1990. Without the growing participation of developing countries in international trade, and sustained efforts to lower barriers to the integration of markets, it is hard to see how this reduction could have been achieved...

Trade also affects long-term growth since it gives access to more advanced technological inputs available in the global market and because it enhances the incentives to innovate. Trade contributes directly to poverty reduction by opening up new employment opportunities, for example for agricultural producers, with the expansion of export sectors, and by bringing about structural changes in the economy that increase employment of low-skilled, poor workers in the informal sector. Trade also provides better access to external markets for the goods that the poor produce. 

Finally, trade is not war – despite the rhetoric sometimes used by politicians who oppose free trade. Nor is free trade particularly about winners vs. losers – again, a politically favorite accusation hurled at times. In contrast, voluntary exchanges in a free market rank as the exact opposite of war, in any sense of the word. Each party gains in a market trade; if not, the exchange wouldn’t occur.

For good measure, free trade works against actual war. After all, if individuals and businesses freely partake in commerce with individuals and businesses in another country, those two nations are less likely to go to war. Indeed, this was one of the reasons why there was such a push to reduce trade barriers after World War II – especially given that many saw restrictions on trade (that is, protectionism) during the 1920s and 1930s as a contributor to the outbreak of World War II.

Free trade does not mean that no one will lose a job or no business will fail. Quite the contrary, market competition means that consumers ultimately decide which products succeed and fail, and in turn, which businesses will succeed and fail. That, in turn, means that resources are allocated to their best or most efficient uses given the needs and demands of consumers. Competition remains essential to long-run economic growth. This stands in opposition to protectionism whereby politicians climb into bed with special interests to dole out dollars, and try to anoint winners and losers. 

Free trade is about economic growth, lifting people out of poverty, creating wealth, boosting incomes, enhancing freedom, and mutually beneficial commerce. Free trade is a moral good, and yes, it rocks!

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Ray Keating is a columnist, a novelist (his latest novel is The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series), an economist, a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.