President Trump’s Liberation Day tariffs have brought the issue of global trade to the fore. International trade benefits most Americans, not just an economic elite, but free trade economists have neglected some impacts of other nations’ trade barriers.
Economists seek to understand complex interactions based on individuals’ goals and actions. This approach instructs that individuals and businesses engage in trade, not nations. This helps us see how Americans benefit.
Consumers seek the best products for their tastes and budget. Hondas, Hyundais and Mercedes increase buyers’ options and American choosing these “foreign” products (all assembled in Alabama!) get a car better satisfying their preferences. Consumers benefit.
Business owners seek better, less expensive inputs for their products, whether semiconductors from Taiwan or steel from Germany. American firms can then make better or less expensive products, increasing sales. International consumers provide American firms with more paying customers, supporting additional jobs and profits. Businesses benefit.
But foreign manufactures and international customers also benefit from doing business with Americans. This is no surprise, because voluntary market exchanges enrich both parties. Because trade is positive sum, our trading partners’ benefits do not prove we must be worse off.
A global elite did not build the global economy. It emerged as individual firms in America, Japan, Germany, Korea and elsewhere worked hard and sold to customers worldwide. Governments merely had to get out of the way to let them do so.
The exact form of trade restriction matters in the discussion of truly free trade.
Many nations, including America at times, protect domestic producers from imports. A nation exporting to our country while simultaneously blocking American firms selling in their nation will run a trade surplus with the U.S. But remember, places like Hyundai, for example, and the American buyer both benefit from that purchase; Koreans need not buy anything back from America to validate these benefits.
Many governments subsidize some of their companies’ exports to the world. With export subsidies, it is as if China only charges us $300 for something costing $500. This lower price offshores production but benefits American consumers. Thus, even unfair trade benefits Americans, as free trade economists stress.
But the drawbacks of trade barriers are often ignored.
For one, trade barriers make the global economy less efficient. Letting the full cost of a good guide all production would make all nations more prosperous.
Trade barriers also cost American firms sales, with export subsidies a particular threat to offshore production. Unfair trade hurts some Americans and raises fairness issues.
Markets offer no guarantees: A new business may never attract customers, new competition could bankrupt a successful business, or our jobs could be automated.
Economist Joseph Schumpeter coined the term “creative destruction” for this churn in a market economy, perfectly capturing how inventions enrich most but harm some. Bad things can happen to good people in markets.
Economic progress requires the creative destruction of businesses and jobs, otherwise, we would still be using horse-drawn buggies and sailing ships and wearing hand-made clothes. I think people will more readily accept the risk of their business or job being creatively destroyed if everyone gets the full opportunity to compete.
But unfair trade prevents full competition. Must American firms prevented from selling in China accept losing their American customers to Chinese competitors? Must Americans accept the offshoring of their jobs due to foreign government assistance?
With creative destruction, bad things happen to good people, but the economy becomes more prosperous. With export subsidies, bad things happen to good people, and the world economy becomes poorer.
I will object, however, to the president’s ability to impose tariffs. Tariffs are taxes; we the people and our elected representatives should have to specifically approve taxes. The president can do this because Congress authorized “emergency” tariffs, but Congress should reassume its constitutional duties.
Voluntary trade benefits both the buyer and seller, even when exchange crosses borders. If Trump creates a truly free trade global economy, America and our trading partners will be better off. If other nations do not want true free trade, we can then consider permanent remedies.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to [email protected].
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