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Protectionism Will Make America Poor, Not Great

Benjamin Powell

President-elect Donald Trump’s anti-trade rhetoric has proven bad economics can make good politics. Fortunately, after Mr. Trump assumes office, his trade policies will likely be better than his campaign rhetoric.

Many factors contributed to Trump’s victory. His upset wins in the so-called "Rust Belt" states, which are typically Democratic strongholds, can be linked to his promise to revive US manufacturing by restricting “unfair” trade with Mexico, China, and other countries.

This promise resonated well with union workers. Trump won the union vote in Ohio, tied Clinton among union households in Michigan, and narrowly lost the union vote in Wisconsin by 8 percentage points – a huge improvement over 2012 Republican candidate Mitt Romney.

The reason Mr. Trump’s rhetoric on trade resonated with so many blue collar voters is because they believe a popular fallacy: foreign trade destroys US jobs.

According to exit polls, 50 percent of voters in Wisconsin and Michigan agreed with the notion that international trade kills American jobs. Similarly, 53 percent of Pennsylvanian voters and 48 percent of Ohio voters bought into this fallacy. Among the voters in the four states who expressed agreement with the trade fallacy, Trump’s support ranged from 59 percent in Michigan to 67 percent in Ohio.

When imports increase, jobs frequently are lost in competing domestic industries. What voters don't realize is these same imports create jobs elsewhere in the economy.Yet, as any trade economist understands, the truth is trade neither creates nor destroys jobs.

When imports increase, jobs frequently are lost in domestic industries that compete with those imports. This is all many voters see. What they don’t realize is these very same imports create jobs elsewhere in the economy.

More than half of all imports are intermediate components or raw materials that go into the production of other goods and services. When international trade makes these materials and parts cheaper and more widely available, the domestic industries that use these items become more competitive, enabling them to sell more products, which results in expansion and increases in jobs.

Similarly, when foreigners receive dollars by exporting to the United States they’re able to buy more, which increases the market for U.S. exports. This, too, powers economic expansion and boosts employment in U.S. export industries.

International trade changes the mix, not the number, of jobs in the United States. In fact, the classic economic case for free trade rests on the reshuffling of jobs. The reshuffling allows American workers to perform the tasks at which they are relatively more productive, while foreigners do the same.

Exit polls showed only a small minority (fewer than 13 percent) of voters in the Rust Belt battleground states understood international trade has no net effect on the number of jobs. Candidate Trump benefited from their ignorance.

If Mr. Trump runs for re-election in four years, voters are likely to care less about his rhetoric and more about the state of the economy. The protectionist policies he promoted during the campaign would shrink the economy and make the United States poorer.

President Trump will have to choose between candidate Trump’s promises. He can embrace international trade and contribute to making America great, or he can follow his protectionist rhetoric at the expense of American greatness. But he can’t have it both ways.

This first appeared at Independent Institute.

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