The Democratic Party has a long history of promoting trade and resisting trade wars. We need that party now more than ever.
As the Democratic presidential candidates assemble in Miami for their first debate, President Trump is singularly vulnerable on trade.
His policy of perpetual trade wars is failing in exactly the ways predicted. It is making Americans poorer, on average. It is raising prices of washing machines, industrial parts and countless other goods.
It is spawning cycles of retaliatory tariffs, punishing everyone from soybean farmers to lobstermen. It is leading to new government welfare programs for the industries affected.
It is causing business confidence and investment to sag around the world. His trade wars are tempting central banks — Europe’s being the latest — to weaken their currencies (efforts that inevitably will fail, because each central bank will be tempted to leapfrog the previous one).
Trump’s trade war policy is not even popular. According to a national survey released in May by Quinnipiac University, 48 percent say Trump’s protectionist policies are hurting the economy, against 40 percent who say they are helping.
The Democrats lack only one thing to counter Trump’s policy: a coherent and courageous alternative.
Among the party’s score of contenders, here’s a prayer that one will evoke its greatest free trader, President Woodrow Wilson.
Precisely 101 years ago, with World War I drawing to a close, Wilson called for “the removal, so far as possible, of all economic barriers, and the establishment of an equality of trade conditions.”
Wilson had already accomplished one of his signature goals: a broad reduction of tariffs in the United States, wiping out decades of protectionist laws by business-friendly Republicans. Though personally marred by his racial prejudice, Wilson realized the logic of globalism. He was trying to create an international framework to prevent another war. “All the peoples of the world are in effect partners in this interest,” Wilson said.
That should have been self-evident, but it wasn’t. In the 1920s and ’30s, nations again indulged in a game of tariff leapfrog — you tax my furniture, and I’ll tax your hubcaps. Tariff wars led to currency wars, beggar-thy-neighbor devaluations spawning inflation and perpetual financial crises.
After the Great Depression and World War II, a new generation of Democrats led an international effort to repeal trade and financial barriers and prevent a repeat. Bitter experience had taught that economic prosperity could not be cordoned off. Notably, the Democrats of the postwar generation tolerated gradual tariff relaxation despite their close alliance with Big Labor.
The spirit of Wilson lived on in the statesman Dean Acheson, as it did in President Bill Clinton and, to a lesser extent, President Barack Obama. Those Democrats all presided at the dawn of new eras — postwar, then post-Cold War and the rise of developing states such as China. Although each insisted on restrictions appropriate to their times, each recognized that trade increases national well-being. They pushed ahead with liberalizations, including the trade pacts that helped to stitch the world into mutually dependent hives of commerce. (Yes, I mean NAFTA).
But as progressives turned against globalism, Democrats made a sharp break against trade deals and, to some extent, against trade itself. Though private-sector unions have dwindled, they are still significant in Democratic primaries. In 2016, when Hillary Clinton was battling Sen. Bernie Sanders (I-Vt.) for the Democratic presidential nomination, the former secretary of state flipped on the Trans-Pacific Partnership and disavowed it.
In retrospect, her turnabout was a watershed. For Democrats, trade has been a scare word ever since. As we go into Miami, it’s hard to find a real policy on trade, even on the candidates’ websites.
Nobody wants to say they agree with Trump, but the left-most candidates — Sen. Elizabeth Warren (D-Mass.) and Sanders — exude a disdain for trade deals that sounds a lot like “Trump without Trump.”
They accuse him of running trade policy to favor big corporations, whereas they would do so to help people.
In reality, all protectionist policies create winners and losers (for businesses and for workers). The catch, of course, is that losses outweigh gains. Warren also has mimicked Trump in calling for a weaker dollar.
Step by step, the 21st-century protectionists are mimicking the doomed formula of the 1930s. Trump’s tariffs and threats have caused deep anxiety in Europe, especially in Germany. His scotching of the TPP cost us influence in Asia and market share in Japan. If he imposes his threatened tariffs on Mexico, we could have a recession on our southern border and a genuine immigration crisis. His waves of China tariffs have exacerbated the global slowdown. Can Democrats not offer anything better (or saner)?
The middle group of Democratic candidates also tilt anti-trade, but their rhetoric is not as harsh. This camp includes Sen. Cory Booker (N.J.), Sen. Kamala D. Harris (Calif.) and Pete Buttigieg, the mayor of South Bend, Ind.
Finally, a handful of the candidates could be described as closet doves, favorably inclined toward trade deals though hardly branding themselves with the scarlet letter “free trader.”
These would include former vice president Joe Biden and former Texas congressman Beto O’Rourke. Former Colorado governor John Hickenlooper has openly supported trade deals and condemned the Trump tariffs, citing their ill effects on rural and blue-collar communities. The website of Sen. Michael F. Bennet (Colo.) says, “He will end the trade war.”
Trade policy is a good proxy for measuring political courage, because the gains from protectionism tend to be concentrated, while the losses are diffuse. Trump’s washing-machine tariffs are a good example.
A Becker Friedman research brief says those tariffs resulted in higher prices (by about 12 percent). Surprisingly, prices also rose for dryers.
If you consider the higher prices to be the “cost” of the domestic jobs created, it works out to $820,000 per job. For the same price, the government could send 25 workers to trade school.
A National Bureau of Economic Research paper documents that, contrary to Trump’s rhetoric, the tariffs are fully paid by American consumers. In 2018, the authors note, “The U.S. experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network” and reduced availability of imports.
Intriguingly, “the trade war also reduced real income for other countries.” Trump’s prism for economics remains the casino, i.e., a zero-sum game. He has it exactly wrong. In trade, both sides win. In protectionism, both sides lose.
One further, and significant, defect, is the loss to firms that have made investments and are forced to rearrange supply lines.
Finally, the impact of the Trump tariffs is widely expected to get worse. The first rounds were directed at industrial and commercial products. New tariffs will be aimed more at retail, such as apparel, shoes and toys.
The Democratic candidates should mine such studies to tell Americans what, in their gut, they already know: The trade war policy isn’t working.
Democrats have a clear path to a better policy. Promote trade and at the same time support education, infrastructure and expanded services for communities hurt by trade. Strengthen the Trade Adjustment Assistance program.
Democrats should endorse keeping the World Trade Organization, which enforces trade rules, vital. Trump has marginalized the WTO.
When countries such as China are suspected of cheating, we should counter from within strong trade alliances with our allies. You cannot fight a trade war with everyone at once, and a policy of endless trade wars — which seems to be his objective with China — will sow disruption and mutual losses rather than sustainable gains.
Most Americans want a reasonably stable climate for business. They don’t want the government to decide winners and losers. They don’t want to turn trading partners into enemies, and they don’t want endless trade wars. The Democrats should say so.