Honeywell’s CEO David Cote recently told Bloomberg that the world seems to have a constant need to relearn the benefits of free trade.
“I think people have been arguing about free trade since the Phoenicians were at it a couple of millennia ago,” he said. “And every century we seem to have the same argument, whether it’s about, ‘is productivity good? Is trade good?’ And every century we kind of learn the same lessons.”
| || |
It seems another class is convening in the school of hard knocks this political season.
If Hillary Clinton and Donald Trump have anything in common, it is their opposition to the Trans Pacific Partnership, a trade deal involving the United States, Canada, Chile, Australia, Japan, Mexico, Peru, New Zealand, Singapore, Malaysia, Vietnam and Brunei. Their followers rail against the jobs they say will be lost, by this and any other trade agreement.
Clinton once stood with President Obama in favor of the deal, but she changed during the campaign, spurred, perhaps, by the traction her chief rival, Bernie Sanders, got from opposing it.
Republicans, who generally championed free trade in the post World War II era, have changed, as well. Ted Cruz was as opposed to TPP as is Trump.
They are all wrong.
They are wrong both about their fears of what this agreement, or any other agreement, would do, and about trade as a political issue. Despite everything you hear at the conventions this month, a recent NBC News/Wall Street Journal poll found 55 percent of Americans agree with the idea free trade is good in a global economy.
And yet the relentless attacks on trade continue. Why? Because it’s always easier, politically, to appeal to people by offering them a scapegoat for their hardships. Or, as Cote put it, “The negative argument is so much easier to make than the positive argument.”
You can point to the shuttered manufacturing plant and the depressed communities that used to thrive. It’s much harder to point to the other segments of the economy that are thriving now because new markets have opened overseas.
That doesn’t make those benefits any less real. You may quibble with details of the TPP — it’s not a perfect agreement — but an independent analysis by the Peterson Institute for International Economics concluded it would raise real incomes in the United States by $131 billion, which equates to 0.5 percent of GDP.
It would gradually end tariffs among the trading partners and increase U.S. exports by 9.1 percent by 2030.
The study said TPP would not add any net jobs overall, even as it also wouldn’t cost any net jobs. It would indeed shift some jobs from manufacturing to areas more attractive as exports. But it concluded that to delay the agreement’s enactment by even one year would cost the economy $77 billion in potential revenue.
In addition to the economic benefits, the agreement would spread U.S. influence in a sensitive geopolitical region, even to some nations that lack political freedom. It would force some standard rules on these nations.
Trade allows partners to make deals that are mutually beneficial while spreading good will and a sense of interdependence. That’s good for national security.
The world may not have to relearn the lessons of free trade exactly every century, but it was about 86 years ago that President Herbert Hoover signed the Smoot-Hawley Tariff Act, which raised tariffs on many goods and led many nations to raise tariffs on U.S. goods in return. He signed it despite a petition signed by 1,028 economists urging him not to, and despite J.P. Morgan’s chief executive almost, as he put it, going down on his knees to beg him to veto it.
Unemployment rose from about 8 percent in 1930 to 23.6 percent two years later, according to labor statistics. While the tariffs certainly were not the only factor to this downturn, they didn’t protect or create any jobs, either.
Rejecting the TPP would not be the same as imposing new tariffs, but it would signal to the world that the United States in retreating from global trade. We can hope the lessons politicians relearn are not too harsh this time.