Fraser Forum

William Watson: The Trump-Sanders anti-trade, anti-progress alliance

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It’s been a tough call this U.S. primary season, choosing between the Republican and Democratic debates. The Republicans are livelier, in a UFC-style sense, at least, and on average the policy positions they propose seem slightly more free-market. Or at least they were when there were more non-Trump candidates. As Donald Trump knocks off more and more of his rivals, however, his businessman’s view of things comes to dominate. Business people are seldom as pro-market as everyone else assumes.

By contrast, the Democratic debates are more civil and the discussion more detailed and informed, but the average policy position taken, with Senator Bernie Sanders starting way left and Hillary Clinton slowly moving that way, are almost never pro-market.

This is especially the case regarding international trade. I’ve watched many of the debates but I don’t think I’ve yet heard anyone mention the World Trade Organization, of which the United States was a founding and has always been a leading member. It’s to the everlasting credit of the U.S. that it used its utter economic and strategic dominance following the Second World War to steer the world—which often didn’t want to be steered—toward liberal internationalism, a system that has helped dozens of emerging countries emerge, beginning with the losers of that war.

Now, however, both Trump and Sanders are telling Americans that trade is rigged against them and that both the multilateral and bilateral deals their country has negotiated under the auspices of first the GATT and then the WTO have been tilted against their national interest. I don’t know a lot of Canadian trade negotiators but I know a few, and I’ve read the memoirs of several more and I’ve never heard or read any of them say that Americans are lousy negotiators. Quite the contrary, the U.S. is always aware of the (ahem) trump card it holds in any negotiation, namely, access to the biggest, richest market in the world, and plays it often and shrewdly, not that such a strong hand has to be played all that shrewdly.

Of course, China now has a similar trump card and has started to play it aggressively, too. But it’s hard to believe we’re such chumps as negotiators that the Americans somehow manage to be tough on us but rollover for the Chinese and Japanese, as Donald Trump claims they have done.

Has trade cost the U.S. jobs? Of course it has. Trade always costs all trading partners jobs. That’s the whole point of trade. Industries that contract because your trading partner starts providing you with product shed jobs and capital. And the reverse happens when your exports increase because of trade: your partner loses jobs. But because you’re now each specializing, the jobs that remain in both countries are better jobs and the higher income each country now enjoys can be used to buy new domestically produced goods and services that themselves provide new jobs. And to help those workers who do lose their jobs and have trouble finding new ones.

Last year the U.S. exported $US2.22 trillion worth of goods and services, more than the output of the entire Canadian economy. Granted, it also imported $US2.76 trillion, so foreign workers did produce things American workers could have produced if the U.S. had instead insisted on doing everything itself. But if every country decided to do everything itself, who would buy the $US2.2 trillion of exports and support all the jobs that go into that?

If you outlaw exports and welcome imports, then, sure, you’ll have a trade deficit. But what country does that? In intro economics students learn that trade deficits are basically caused by macroeconomic factors. If your economy is growing faster than your trading partner’s, then you’ll be sucking in more of their imports than they can suck in of yours. And if your economy is an attractive place to invest, as the U.S. almost always is, the resulting inflows of capital will drive up the value of your currency, which makes it harder for your exporters to compete. Maybe the U.S. isn’t as attractive a destination for investment as it was in the 1980s but if you look around the world, it’s a whole lot more attractive than most places these days including Canada.  

Instead, Senator Sanders and Mr. Trump want to tear up and renegotiate trade deals and, in Trump’s case, impose steep across-the-board tariffs on countries with big surpluses in their trade with the U.S. Given our big deficit on our U.S. trade, we don’t have to worry about being targeted. But if China, Japan, Europe, the U.S. and others start blasting each other with big tariffs—in complete violation of WTO rules, by the way, not that rules seem to matter to some American candidates—most other countries, Canada certainly included, are going to become collateral damage as the big guns shoot it out.

The primary debates may be fun to watch. But fundamentally, they’re depressing.


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