International Business Quarterly: How Pro-Trade People Can Make Fewer Self-Defeating Arguments
October 26, 2016
The defense of free markets and international trade is often a thankless task. While the election-year rhetoric here in the United States has turned increasingly nasty, trade has never been popular with voters. Open markets require leadership, and those who continue to make the case for free trade have my admiration. But many who work to advance the cause wind up undermining their own arguments. Here is some “free advice” that I hope will help my friends score fewer “own goals.”
Context, Context, Context
Political communication at its best is concise and connects directly to the beliefs of the audience. It can, however, suffer from a lack of context, and statements that connect to misperceptions can easily lead to error. To invoke Frédéric Bastiat, arguments about trade and economics are vulnerable to misperceptions because of the effects that are seen versus those that remain unseen.
One easy way to lose an argument with a trade critic is to let audience beliefs establish the context. As an illustration, let’s unpack the statement: “bad trade deals have hollowed out U.S. manufacturing.” What does the critic mean by “hollowed out?” Last year U.S. real manufacturing output was the highest in history. Real manufacturing output is about 40 percent higher than 20 years ago. The critic’s complaint, it seems, is not manufacturing output, but manufacturing employment. U.S. manufacturing employment has been declining for around 40 years for the same reason that agriculture employment has been declining for over 100 years: productivity gains through applied technology. Enhanced productivity means we make more things and grow more food with fewer people, which is great for living standards. Are “bad trade deals” the culprit for productivity gains? No, just the scapegoat.
What is a “bad trade deal?” Consider the much-maligned North American Free Trade Agreement (NAFTA): before NAFTA, the average U.S. applied tariff on imports from Mexico was around 4 percent, while the average Mexican tariff on U.S. imports was 13 percent. Was it a “bad deal” for the United States if both parties reduced tariffs to zero? Consider what the deal was trying to accomplish. Terms of trade before negotiation are typically an assortment of protections that are better understood as government subsidies for politically connected industries—also known as “crony capitalism.” Every trade negotiation is an exercise in pushing cronyism out of the way and freeing up space for markets to work, which is good for consumers and for economic freedom. Cronyism persists in U.S. trade law (consider the sugar program or the 32 percent tariff on brooms), but the barriers faced by U.S. exporters in other countries are generally far greater. Effective communication about trade requires that the audience be aware of the starting point (protectionist subsidies for connected firms at the expense of poorer citizens), as well as the goal (neutral, market-based, fair treatment for all products and services). Voters will only know this if we tell them.
Ease Up on the Mercantilism, OK?
Mercantilism is the theory that state power is enhanced by the accumulation of positive trade balances. Over 200 years ago, Adam Smith and David Ricardo demonstrated this theory is not just wrong but harmful to societal welfare. Yet today, almost every argument from proponents of free trade relies upon a mercantilist rationale: “if free trade agreement (FTA) z is approved, industry x will be able to boost exports by y.”
I fully understand the temptation. Industry associations whose members benefit from higher exports are careful about making accurate claims concerning their business interests, and exports are measurable. But selling trade liberalization policies on the basis of export performance creates as many problems as it solves. First, the audience is likely to perceive that the only reason to pursue trade liberalization is to generate U.S. exports. Imports are, by extension, viewed with suspicion, which feeds the mercantilist argument that somehow imports shrink economic output and cost jobs. In fact, imports are not just beneficial to consumer welfare, but greatly enhance the global competitiveness of U.S. products. Fully half of U.S. imports are raw materials and intermediate goods used as inputs to U.S. manufacturing.
Overreliance on export performance feeds the mistaken notion that the trade balance is a handy scoreboard for gauging the effectiveness of U.S. trade policy; in fact, changes in the balance of trade have almost no connection to changes in trade policy. Finally, forecasts of future export performance are worse than simply boring—the numbers are nearly impossible to get right. Trade flows and national economic performance are driven by factors that have little to do with trade policy. When (as usually happens) numerical promises fail to materialize, the “error” gives critics a handy club with which to bash estimates for new agreements.
Put Away the Charts and Make the Case for Freedom
In politics, winning arguments are stories, while losing arguments sound like lectures. Free traders need to up their game with stories that make the moral case for trade: the story of individual freedom. At a recent public event, House Ways and Means chairman Kevin Brady (R-TX) made his convictions clear:
Free trade isn’t about China, or Mexico, or Britain. It’s about America—and guaranteeing Americans their economic freedom. This is protecting our freedom against those who would tell you which smart phone you can buy, what car you can drive, what groceries you can choose, and at what price. This is freedom against Washington dictating where your business can sell its legal products and how much you can charge. This is freedom against “Washington knows best.”
Yes, trade agreements are imperfect and can be improved. And twentieth century worker adjustment policies have failed to keep pace with twenty-first century realities. But the freedom to engage in mutually beneficial exchange with minimal interference from governments—the freedom to improve our own lives—ought to be the centerpiece of pro-trade arguments.
International Business Quarterly is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2016 by the Center for Strategic and International Studies. All rights reserved.
