THE CASE FOR FREE TRADE

Trade policy is a statement of American identity. Our trade policy choices reveal America’s values and where we put our trust. Do we place our trust in Washington elites to revive a declining coun- try, or do we trust in America’s tradition of entrepreneurs and everyday people blazing new trails? Do we follow China by copying its strong-arm trade policies, or do we lead China and the rest of the world by forging our own path? Our trade policy decisions will tell you what we Americans really think of ourselves.

A CONSERVATIVE VISION FOR TRADE

The policy recommendations in this chapter reflect a belief in the strength of America’s founding institutions, its economy, and its people. They are based on data showing decades of American progress with all that this implies. They also reflect a realistic understanding of the fact that trade policy has limited capabilities and is vulnerable to mission creep and regulatory capture. Policymakers should be modest about what they can accomplish through trade policy and need to exercise constant vigilance against abuses. For example:

Trade can lower consumer prices for ordinary Americans and open new markets for American businesses and their goods. Trade can help American workers and businesses to specialize in what they do best—which is how they outcompete the rest of the world in technology, manufacturing, agriculture, and other areas. In foreign policy, trade can help to preserve and strengthen alliances. At the same time, sound trade policy requires humility. It is not a panacea for every policy problem. Trade policy cannot favor one sector over another without causing tradeoffs that outweigh the benefits.41 Neither free trade nor protectionism will create jobs. Trade affects the types of jobs people have, but it has no long-run effect on the number of jobs. Labor force size is tied to population size more than anything else. The American people are smart and sophisticated enough to hear these truths.

It is not just conservatives who overestimate the power of trade policy. Recent progressive attempts to use trade policy to advance whole-of-government initia- tives on climate, equity, and other issues will fail for the same reason that a hammer cannot turn a screw: It is the wrong tool for the job. Conservatives should be sim- ilarly skeptical of recent attempts on the Right to use progressive trade policy to punish political opponents, remake manufacturing, or accomplish other objectives for which it is not suited. The next Administration needs to end the mission creep that has all but taken over trade policy in recent years.

Trade policy works best when it sticks to trade and treats separate issues separately. Trade agreements since the North American Free Trade Agreement (NAFTA) have been increasingly burdened by trade-unrelated provisions involving labor, environmental, intellectual property, and other regulations. Where these were a side agreement to NAFTA in the 1990s, they were integrated into the main text of the United States–Mexico–Canada Agreement (USMCA) in 2019. The Indo-Pacific Economic Framework for Prosperity (IPEF) that the Biden Admin- istration is currently pursuing consists entirely of trade-unrelated provisions: Negotiations are steering clear of trade altogether. Trade-unrelated provisions are routinely hijacked by progressives and rent-seek- ers and dilute otherwise worthwhile trade agreements. They also create additional points of contention that make agreements unnecessarily difficult to pass. A con- servative trade policy should limit trade-unrelated provisions in trade agreements. This does not mean that conservatives should ignore international negotiations on labor, environment, intellectual property, and other non-trade issues. It means they are more likely to succeed by treating each of them separately rather than letting them die in committee with each providing an additional sticking point for delaying the others.

A conservative trade policy must also take seriously the reality that in a democ- racy, the other side holds power about half of the time, but progressives run most agencies almost all of the time. A cardinal rule in public policy is not to give yourself powers you wouldn’t want your opponents to have. That means building institu- tion-level safeguards against mission creep to limit abuses.

Foreign policy considerations are not as separate from trade as are labor or environmental standards. China deserves special consideration, as does the World Trade Organization (WTO) along with its possible successors or alternatives. While trade is not the star of American foreign policy, it does play a supporting role. It should be used to strengthen alliances to help counter China, Russia, and other threats while making economic and cultural inroads inside them. The next Amer- ican President should use this aspect of trade to the nation’s advantage. Drawing from America’s Roots. In 1776, nearly 90 percent of Americans were farmers. For 10 people to eat, nine had to farm. That meant fewer people could be factory workers, doctors, or teachers, or even live in cities, because they were needed on the farm. Accordingly, life expectancy was around 40 years, and literacy was 13 percent.42

Today, fewer than 1 percent of Americans work on farms, yet America is a net exporter of food. People have infinite wants, so as rising productivity pushed some people off of farms, there were countless other jobs they could do. In true American fashion, many of these jobs were in brand new industries.

This was possible because the same can-do cultural values that inspired the American founding were accurately reflected in its new government. The U.S. Con- stitution created what was then the world’s largest free trade area, and it did so on purpose.43 The combination of the American self-improvement ethos and the large, free internal market guaranteed by the Constitution yielded intensive growth on a scale never before seen.

Many displaced farm laborers got jobs making the very farm equipment that made intensive agricultural growth possible, from railroad networks to cotton gins. Each fed the other. Agriculture and industry are not separate; they are as inter- connected as everything else in the economy. None of this could have happened had the government enacted policies to preserve full agricultural employment. Understanding Value. Just as communication is impossible without agreed- upon definitions of words, coherent policymaking is impossible without coherent categories. Policies are not likely to succeed when they try to separate an intercon- nected economy into arbitrary categories. The factory worker who builds a tractor does as much to boost farm production as the farmers themselves, yet economic planners put them in different categories. This problem is baked into industrial policy, as progressive planners have learned again and again.

A conservative approach to economic policy should treat value as value, whether it is created on a farm, in a factory, or in an office. A dollar of value created in manufacturing is neither more nor less valuable than a dollar of value created in agriculture or services.

Pursuing Access to Growing Markets. American history holds lessons for today’s conservative trade policy. Some modern analysts see a correlation between high tariffs and high growth and confuse it for causation,44 but 19th century Amer- ica teaches a different lesson.

While the Constitution banned internal tariffs in the U.S., international tariffs reached their highest levels in U.S. history during the 19th century, beginning with the 1828 Tariff of Abominations.45 At their peak in 1830, the average tariff on duti- able goods was 62 percent.46 Fortunately, however, the tariffs’ distorting effects were outweighed by market growth elsewhere. The 19th century saw Western expansion and a growing population (including millions of immigrants) working for the American dream. America’s growing internal free trade zone allowed for still more specialization and more trade across state borders. America’s geographic expansion ended long ago, but population growth, the U.S.-led rules-based international trading system, and the steady 75-year decline in tariffs after World War II have made possible decades of continued prosperity. Intensive growth requires specialization, and the larger the market, the more spe- cialization is possible.

Fighting Pessimistic Bias. Farmers’ share of the population continued to decline through this entire period, yet employment remained high, and the

CHART 1 U.S. Real GDP per Capita REAL GROSS DOMESTIC PRODUCT PER CAPITA, IN CHAINED 2012 DOLLARS, SEASONALLY ADJUSTED ANNUAL RATE $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000  $0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 SOURCE: Federal Reserve Bank of St. Louis, “Real Gross Domestic Product per Capita,” https://fred.stlouisfed.org/series/ A939RX0Q048SBEA (accessed March 2, 2023). A heritage.org

economy continued to grow. Factories were not the only beneficiaries of agri- culture’s productivity boom and the labor it freed; services also grew. In fact, service-sector employment surpassed manufacturing employment around 1890— far earlier than most people realize.47 Pessimistic bias is one of the most important cultural problems that conserva- tive policymakers need to address. In trade, as in most other areas, few people ever zoom out to see the big picture, which is one reason why so many people mistakenly believe that U.S. manufacturing and the U.S. economy are in decline. The data do not show American economic carnage. They show more than two centuries of intensive growth, made possible by a growing internal market through- out the 19th century and a growing international market in the post–World War II era. The transition from farm to factory did not shrink the labor force or farm output. Later, the transition from factories to services did not shrink the labor force, factory output, or farm output. Both transitions affected the types of jobs, not the number of jobs.

Americans today can more easily afford everything from air conditioning to flat-screen televisions and smartphones, and trade is one reason why. Bigger mar- kets mean more specialization, more innovative ideas, more customers, and more people from whom to buy.

America’s official unemployment rate went as low as 3.5 percent during 2022, while real per capita gross domestic product (GDP) rose to an all-time record. Clearly, people who wanted to work were able to find work that paid well even as manufacturing jobs grew more slowly than service jobs.