Rebuilding Conservatism #3: Lessons in Economics, Part I – Thinking about Trade

 by Ray Keating

The Keating Files – January 5, 2021

 

(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 third “Rebuilding Conservatism” column.)

 

Whether you call it “free enterprise,” “capitalism,” or “free markets,” conservatives once understood that free enterprise stood as a foundational institution of conservatism. 

Why? An economic system rooted in freedom, particularly, the freedom to own and improve upon private property, to seize upon or create opportunities, to innovate, to create, to invest, to start up and build businesses, and whether an entrepreneur, employee or shareholder, to serve the needs and demands of others, ranks as the greatest means for economic and income growth, wealth creation and raising people out of poverty. It is a system not subject to political whims, but instead, governed and disciplined by competition, the rule of law, and, ultimately, consumers.

 

Tragically, as evidenced by an assortment of anti-free-enterprise and pro-government-action policies endorsed or advanced by assorted so-called “conservatives,” the need for some lessons in economics is vital. 

 

This is the first of those lessons on our free enterprise system, and it deals with free trade and protectionism – an area where various “conservatives” have gone far stray. The following “Free Enterprise in Three Minutes” podcasts provide quick but essential lessons on how trade works, why protectionism is costly and destructive, why free trade matters, and more. Take a listen to the following 12 short sessions, as a first step in a series of lessons on key topics related to free enterprise, the economy and conservatism.

 

1. Free Enterprise in Three Minutes with Ray Keating – Episode #2: Free Trade Rocks. What is free trade, and why does it rock?

https://www.buzzsprout.com/155969/649162-episode-2-free-trade-rocks

 

2. Free Enterprise in Three Minutes with Ray Keating – Episode #3: Protectionism Sucks. Protectionism doesn’t work. It’s costly, hurting consumers, workers and U.S. businesses. And there’s nothing fair about it.

https://www.buzzsprout.com/155969/651383-episode-3-protectionism-sucks

 

3. Free Enterprise in Three Minutes with Ray Keating – Episode #4: Real Deal on Trade Deficits. Is a trade deficit truly bad for our economy? Ray Keating sums up why the trade deficit is not an economic negative. Keating also notes that imports aren’t negatives, either. https://www.buzzsprout.com/155969/656803-episode-4-the-real-deal-on-the-trade-deficit

 

4. Free Enterprise in Three Minutes with Ray Keating – Episode #19: Mercantilism – Wrong in the 18^th Century, Wrong Today. Ray Keating looks at mercantilism and international trade, and explains why it made no sense in the 18^th century, and it makes no sense today.

http://www.buzzsprout.com/155969/820421-episode-19-mercantilism-wrong-in-the-18th-century-wrong-today

 

5. Free Enterprise in Three Minutes with Ray Keating – Episode #23: Trade, Investment and the Balance of Payments. Ray Keating looks at trade and international investment courtesy of the balance of payments. Keating explains the current account, the capital account, and more, and sums up that the U.S. runs a capital account surplus because it’s an attractive place to invest.

http://www.buzzsprout.com/155969/860172-episode-23-trade-investment-and-the-balance-of-payments

 

6. Free Enterprise in Three Minutes with Ray Keating – Episode #39: Trump and Trade: Politics, Not Economics, Part I: Trade Deficits. Ray Keating kicks off a series of podcasts looking at President Donald Trump on trade from an economics perspective. This first entry notes that the President’s main assumption about trade deficits being economic negatives makes no economic sense.

http://www.buzzsprout.com/155969/1229642-episode-39-trump-and-trade-politics-not-economics-part-i-on-trade-deficits

 

7. Free Enterprise in Three Minutes with Ray Keating – Episode #40: Trump and Trade: Politics, Not Economics, Part II: Losing Wealth? Ray Keating lays out the economic realities of how trade actually works, and how trade fuels economic growth. These economic points run contrary to the assumptions that President Trump has about trade and wealth.

http://www.buzzsprout.com/155969/1242347-episode-40-trump-and-trade-politics-not-economics-part-ii-losing-wealth

 

8. Free Enterprise in Three Minutes with Ray Keating – Episode #41: Trump and Trade: Politics, Not Economics, Part III: Who Pays Tariffs? Contrary to claims by President Trump, Ray Keating makes clear that U.S. consumers and businesses pay for the tariffs imposed on imports from nations like China. And Keating looks at the various costs imposed by those tariffs.

http://www.buzzsprout.com/155969/1271674-episode-41-trump-and-trade-politics-not-economics-part-iii-who-pays-tariffs

 

9. Free Enterprise in Three Minutes with Ray Keating – Episode #42: Trump and Trade: Politics, Not Economics, Part IV: Lost Businesses and Jobs? Ray Keating corrects mistaken notions espoused by President Trump about supposed lost jobs and businesses due to trade accords like the Trans-Pacific Partnership and NAFTA. Instead, one key aspect of how free trade deals benefit the U.S. is the fact that other nations usually have much higher trade barriers than the U.S. does.

http://www.buzzsprout.com/155969/1315582-episode-42-trump-and-trade-politics-not-economics-part-iv-lost-businesses-and-jobs

 

10. Free Enterprise in Three Minutes with Ray Keating – Episode #48: Yes, Free Trade Rocks! Ray Keating talks about his book - FREE TRADE ROCKS! 10 POINTS ON INTERNATIONAL TRADE EVERYONE SHOULD KNOW – and explains why a book is needed to provide a straightforward, highly readable explanation of key points, concepts and facts regarding the actual economics of trade, and to serve as a contrast to the mistaken and sometimes misleading statements on trade served up in both politics and the media.

http://www.buzzsprout.com/155969/1878242-episode-48-yes-free-trade-rocks

 

11. Free Enterprise in Three Minutes with Ray Keating – Episode #49: The Problem with the Language and Numbers on Trade. Based on his book - FREE TRADE ROCKS! 10 POINTS ON INTERNATIONAL TRADE EVERYONE SHOULD KNOW – Ray Keating identifies two key factors that create confusion on international trade – the language of trade and the trade numbers that focused on overwhelmingly.

http://www.buzzsprout.com/155969/1921481-episode-49-the-problem-with-the-language-and-numbers-on-trade

 

12. Free Enterprise in Three Minutes with Ray Keating – Episode #50: The Morality of Free Trade. Based on his book - FREE TRADE ROCKS! 10 POINTS ON INTERNATIONAL TRADE EVERYONE SHOULD KNOW – Ray Keating talks about the morality of free trade.

http://www.buzzsprout.com/155969/2381912-episode-50-the-morality-of-free-trade

 

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Other articles in the Rebuilding Conservatism Series…

 

“Rebuilding Conservatism #2: Free Trade Rocks and Protectionism Sucks”

 

“Rebuilding Conservatism #1: What is Conservatism?”

 

__________

 

Ray Keating is a columnist, novelist, economist, podcaster and entrepreneur.  His new book Vatican Shadows: A Pastor Stephen Grant Novel is the 13th thriller/mystery in the Pastor Stephen Grant series. Get the paperback or Kindle edition at Amazon, or signed books at www.raykeatingonline.com.

 

The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

 

You also can order his 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. 

 

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.

Guest Column: Lighthizer Interview Should Be Required Reading for Econ Students

 by Bryan Riley

The Keating Files – December 18, 2020

 

A recent BBC interview with U.S. Trade Representative Robert Lighthizer should be required reading for economics students. Amb. Lighthizer conveniently repeats several major misconceptions about international trade.

 

For example, according to Amb. Lighthizer, “We want strong communities in the United States. And if that means that T-shirts cost another nickel, then T-shirts will cost another nickel.” 

 

That may sound good in theory, but it is not remotely close to how things work in the real world.

 

If it is more affordable to buy an imported T-shirt than one made in the U.S., the money that Americans save is spent or invested elsewhere in our economy. On top of that, the dollars Americans spend on imports are either used to buy U.S. exports or to invest in the United States.

 

Denying American families and businesses the freedom to buy affordable goods does not create strong communities. It simply empowers the federal government to pick winners and losers within the economy based on who has the most political clout.

 

Amb. Lighthizer: "We're proud of what we have done.... what we tried to do was reorient the purpose of international trade more towards working people in the United States and less towards outsourcing and corporations." 

 

The 8.5 million Americans who work for foreign-owned corporations probably have a more positive and realistic view of the impact of global investment and corporations. Since 2009, jobs created by foreign corporations choosing to invest in the United States increased by 44 percent. Americans would benefit from more international investment, not less.

 

Moreover, as Pulitzer Prize-winning business and economics columnist Steven Pearlstine wrote in 2012: “Those savings and those extra profits [from outsourcing] aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

 

Amb. Lighthizer: "We had lost millions of manufacturing jobs, we had enormous trade deficits, not just with individual countries... but with the whole world, going up every year to the point where it was $800bn, and really something that's not sustainable.” 

 

From 2010 to 2019 the United States added nearly 1.4 million new manufacturing jobs, a trend that began years before President Trump took office. After China joined the World Trade Organization, U.S. manufacturing output increased and manufacturing layoffs declined. According to economist Michael Hicks, “[t]here are major misunderstandings among the public and the media about the manufacturing sector. The U.S. manufacturing base is not in decline, and we have recovered from the recession. Nor are jobs being outsourced because American manufacturing can’t compete internationally.”

 

Because the Trump administration failed to comprehend the cause of trade deficits, its efforts to reduce them through tariffs were doomed from the start. According to the Congressional Research Service, “[r]ecent empirical research studying tariff adjustments in a panel of countries supports this theoretical framework and finds no significant evidence of tariffs improving a country’s trade balance.”

 

The Peterson Institute’s Gary Hufbauer and Zhiyao (Lucy) Lu explained the economics: “[T]he United States is bound to run an overall trade deficit with the rest of the world when combined U.S. savings of the household, business, and government sectors are negative, as they have been for some years. To finance the trade deficit, the United States is obliged to borrow or attract investment from the rest of the world, making a global U.S. trade deficit inevitable.”

 

And that’s not necessarily a bad thing, as economist Walter Williams pointed out: “Our nation has registered current account deficits throughout most of our history, from 1790 right up to our modern period. Over that interval, we went from being a poor, relatively weak nation to the richest and most powerful nation in the history of mankind.”

 

Amb. Lighthizer: "China has a very clear plan. They have a state controlled economy, and they do what's in China's interest."

 

Many U.S. trade actions have also been in China’s interest, whether it was quitting the Trans Pacific Partnership (TPP), picking trade fights with our allies in Europe and North America, or, most recently, threatening to impose tariffs on Vietnam, thereby discouraging companies from relocating from China.

 

Amb. Lighthizer: "There's pretty much a bipartisan consensus that we're moving in the right direction. I think that the Democrats as well as the Republicans realise that we needed to shift the paradigm on trade more in the direction of working people in the United States.”

 

That might surprise many of the country’s hard-working farmers, who have been forced to depend on unprecedented federal support payments to offset trade war-related losses.

 

It’s true that there is a bipartisan consensus on trade. That consensus is overwhelmingly in support of trade. See for example Gallup’s Lydia Saad: “Trade enjoys strong bipartisan support in the U.S. today, with roughly eight in 10 Democrats (82%) and Republicans (78%), in addition to 76% of independents, seeing it as more of an opportunity for growth than a threat from imports.”

 

History will show that the Trump administration failed to shift the paradigm on trade. Instead, it demonstrated how a failure to understand basic economics can inflict significant harm on Americans.

 

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Bryan Riley is Director of the NTU’s Free Trade Initiative. This column was originally published here.

 

Bryan also was a guest on the PRESS CLUB C Podcast.

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.

__________

 

Other articles in the Rebuilding Conservatism Series…

 

“Rebuilding Conservatism #1: What is Conservatism?”

 

__________

 

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.

PRESS CLUB C Podcast with Ray Keating – Episode #27: Reason over Nonsense on International Trade

Listen to Ray’s conversation with a leading voice in our nation’s debate over trade. Bryan Riley is the Director of NTU’s Free Trade Initiative. He subscribes to sound economics when it comes to trade. That is, he is a rare, welcome voice of reason in a national discussion on trade that too often careens into nonsense. Oh, and is Cheap Trick the greatest band ever? Bryan thinks so. Tune in now!

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.

Could-Be-Worse Trade Policy?

by Ray Keating

The Keating Files – January 21, 2020

The benefits of free trade have been well known since Adam Smith published his Wealth of Nations in 1776. Unfortunately, President Donald Trump seems to have missed the last 244 years on the issue. 

The result is that Trump stands out as a modern-day mercantilist focused on meaningless and yet deceptive “balance of trade” numbers, and using costly protectionist measures in a futile attempt to reduce the U.S. trade deficit. Make no mistake, President Trump’s trade policies amount to government interfering in markets via tariffs (i.e., taxes), quotas and other regulations. Trump trade policy has nothing to do with somehow advancing free trade, but instead is all about government managed or manipulated trade.

In fact, being against free trade stands out as perhaps the lone issue where Trump has not switched positions since the 1980s. And that’s unfortunate. After all, no matter how hard any politician tries to wish away reality, politics cannot erase or change the laws of economics.

It’s no secret what protectionism leads to, that is, reduced trade, increased costs for U.S. consumers and businesses, and less economic growth.

From pulling the U.S. out of the Trans-Pacific Partnership free trade effort on his first day in office to the recent signing of a “Phase 1” agreement with China, the Trump presidency has been waging a trade war, while failing to realize that the real attack has been primarily on U.S. businesses and workers. 

Exiting TPP meant making U.S. products less competitive in those 11 Pacific Rim nations. 

Imposing tariffs on steel and aluminum imports has meant increased costs for U.S. industries that use steel and aluminum, which, of course, far outdistance U.S. steel and aluminum manufacturers in terms of numbers of businesses and employees.

Waging a trade war against China has meant increased costs for U.S. businesses given that almost all imports are inputs to American firms, and given lost markets and opportunities for U.S. exports. This “Phase 1” deal basically pushes off, for now, future increases in tariffs, leaves higher tariffs in place (at more than six times higher than prior to the trade war, according to Oxford Economics per an NPR report), and in effect, has the United States in the very strange position of working against efforts to push China toward greater economic freedom by demanding that China hit certain targets in terms of buying U.S. goods, which can only be accomplished via greater government control over the economy.

Meanwhile, the U.S.-Mexico-Canada Agreement (USMCA), which has been approved by the U.S. and Mexico, at this point, and awaits action by Canada, largely leaves the much-maligned NAFTA (the North American Free Trade Agreement) in effect, and makes some improvements regarding, for example, the digital economy, reducing custom duties on cross-border shipments, and intellectual property protections. But it also takes serious steps back from free trade by, for example, injecting wage, labor, auto-content, and environmental regulations into the trade agreement, as well as diminished investor protections. 

Clearly, the pro-trade positives of the USMCA could have been achieved through cooperation with Mexico and Canada without going down the path of adding in anti-trade measures. Indeed, the case can be made that the biggest plus with the USMCA is that it avoided a U.S. pullout from NAFTA, as threatened by the president.

As for the results, there have been no surprises. Real exports and imports, which have each grown at an average annual real rate of better six percent since 1960, for example, have slowed to a crawl. Since the start of 2018, real export growth has managed to average a mere 0.2 percent rate, while imports have advanced by an average rate of only 1.9 percent. The result has been that trade has shaved a significant 0.5-to-0.7 percentage points off of average overall real U.S. economic growth – if not more when you factor in the reach of trade across sectors, including the role that the trade war has played in the recent decline in business investment.

Manufacturing has suffered, given the rise in input costs, reduced export opportunities and added uncertainties. Consider that manufacturing production (i.e., the physical output of manufacturing sectors) effectively moved into a recession in 2019, with the December level of output down by 1.3 percent compared to a year earlier. 

Hmmm, and I thought I heard that protectionism was supposed to help U.S. manufacturing? Go figure.

Finally, study after study, namely by Federal Reserve economists, has confirmed the negatives of recent protectionist, trade-war measures, such as increased costs for U.S. businesses (including manufacturers) and consumers, and reduced U.S. exports. (See a Wall Street Journal summary of these studies.)

The health of our economy as it relates to trade is not measured by the size of trade deficits. Instead, it’s about whether or not exports and imports are both growing robustly or not. The answer of late is that trade is suffering.

Could trade policy be worse? Well, sure, it could be worse. But as it is, it’s anti-consumer, anti-business, anti-worker and anti-growth, and that’s really bad.

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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^th book 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.

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.