As is customary in the days leading up to an election, the campaign rhetoric is getting heated. Here in western Pennsylvania, Democrats have gained points in the polls by adopting an aggressively protectionist ad campaign. Democratic candidates for the House and Senate are promising to protect jobs from foreign competition, while accusing their opponents of exporting jobs. One ad declares, “Millionaire Pat Toomey, he’s fighting for jobs—in China.”
There is considerable demagoguery, as well as obvious political savvy, in Democrat attempts to link Republicans with unpopular issues such as China, trade, and job loss. There is no sense in bemoaning this practice. Electoral politics in the United States has long been a contact sport, and politicians have a First Amendment right to spin, distort, and even to fabricate “facts.” It is our responsibility as voters to separate fact from fiction. That is what I hope to accomplish here.
What motivates me is not the use of demagoguery per se, but rather, the irresponsible use of demagoguery that is potentially very dangerous to Americans. I understand the popularity of protectionist rhetoric. It appeals to patriotic feelings and our common nationality. Given this emotional component, it is very difficult for economists to convince laymen of the benefits of trade, but I will try. Here are the economic reasons why trade is preferable to protectionism:
1) Trade expands the international division of labor, increasing specialization and efficiencies, resulting in productivity gains, more jobs, lower prices, and higher standards of living. Protectionist policies result in higher prices for Americans. Higher prices reduce rather than increase our standard of living. International trade, which now factors into approximately 30 percent of our economic activity, has lifted standards of living in the United States by at least $10,000 per year per family in recent decades.
2) International trade, like domestic competition, enhances the “creative destruction” by which new jobs—that more efficiently, effectively, and economically meet people’s current needs—squeeze out old jobs that no longer do. Protectionist policies do not save American jobs on a net basis; rather, they save some American jobs for those with the strongest political connections at the expense of other American jobs. They are bailouts by another name.
3) I love to “buy American,” but when we pay unnecessarily high prices for protected products to subsidize certain domestic jobs, we have less money left over to buy products made by other American workers. By all means, “buy American” to support high-wage jobs if you wish, but don’t expect the benefits you thereby confer on protected businesses to trickle down to you.
Unions, of course, are leading the protectionist charge. Why wouldn’t they? They already have a legal monopoly protecting them against domestic worker competition, so of course they want similar protection from foreign workers.
Unions want you to believe that subsidizing their above-market wages via protectionist policies is economically beneficial for America. It isn’t. By distorting markets, unions have scuttled millions of jobs for blue-collar Americans. And please understand that those above-average pay packages can’t be paid to everyone—it’s a mathematical impossibility for most workers to receive above-average pay.
4) Blaming China for job loss in America is a diversionary tactic. The major causes of our declining international competitiveness are the economically destructive policies of high taxes, profligate government spending, illiberal anti-market labor laws, low savings rate, and dollar depreciation. Interestingly, the party that has championed these policies—thereby crippling American businesses and shrinking domestic job opportunities—is now promising to save jobs.
5) As Lawrence Summers—until recently, the Director of the White House National Economic Council—has maintained, America should continue to expand international trade, both for economic and national security reasons. Trade wars in the 1930s were followed by military wars in the 1940s. It’s an old truism that if goods don’t cross borders, armies will.
Look, there are two divergent ways for us to interact with people in other countries: peacefully, through commerce, or violently, through military conflict. Which do you prefer?
Our central bank has already launched a currency war against foreign nations. In fact, the Federal Reserve’s weak-dollar policy is already channeling capital, and therefore job opportunities, to Asia. Now Democrats are flirting with a trade war. That is what makes demagoguery about trade so dangerous.
I understand the consuming passion to win elections. But I am concerned that the “peace party” is behaving belligerently toward our trading partners. In pursuit of their personal ambitions, some Democrats are laying the groundwork for future conflicts. When the elections are over, I hope they will abandon their protectionist poison.