Both sides in the presidential race have attacked U.S. bilateral and multilateral free trade agreements. Hillary Clinton says that NAFTA needs “fixing,” Bernie Sanders calls for ending our “disastrous” trade agreements and Donald Trump wants to take every “unfair” trade agreement and either “renegotiate it” or “break it” so that the United States will “win with our trade deals.” All three candidates have called for violating international law by raising taxes (known as tariffs) on goods that the United States buys from other countries.
[interstitial_link url=”https://www.washingtonpost.com/news/monkey-cage/wp/2016/05/17/this-is-what-trump-and-sanders-get-wrong-about-free-trade/”]This is what Trump and Sanders get wrong about free trade[/interstitial_link]
For example, Trump says that he wants a 20 percent tariff on all imported goods and both he and Clinton threaten to impose even higher tariffs on goods from China in retaliation for perceived injustices. In general, the public seems to like these proposals. Many recent polls have shown that a majority of Americans favor more trade restrictions and think that current U.S. trade agreements have done more harm than good.
It’s not surprising that many people don’t like free trade
Even though most economists believe that free trade increases efficiency and makes citizens better off overall, they also acknowledge that the benefits of trade are not evenly distributed. In other words, trade agreements create both winners and losers. For example, many corporations have moved their operations overseas to places where goods can be manufactured cheaply. Although consumers can now buy less expensive goods, some Americans have lost their jobs as a result of these agreements.
Helping the losers is hard
Some economists propose that we can solve this problem by redistributing the benefits of these agreements from those who win to those who lose, so that everyone wins. For example, the United States could tax the winners and subsidize the losers through cash transfers, job retraining programs, or other forms of redistribution. However, these kinds of policies have proven to be logistically and politically challenging to implement.
This is why some candidates want less trade, period
Some of the current presidential candidates say we should adopt a simpler policy — renegotiate or withdraw from U.S. trade agreements. Backing out of these agreements could indeed help some Americans as long as the new arrangements protected domestic industries from outside competition by increasing tariffs, for example. If it becomes more expensive to allow foreign goods into the country, American-made goods will become more competitive. This could bring more manufacturing back on shore, and stop jobs from moving overseas.
However, increasing U.S. tariff rates also would increase the cost of goods for consumers. This has been shown to harm low-income Americans the most. The reason is that foreign producers are sometimes more efficient, because of cheaper labor or resources, or other natural advantages. Free trade allows them to exploit these advantages by selling cheaper goods to Americans. Raising tariffs also would make many American companies less able to compete with foreign companies that would still be able to access low-cost labor and parts. In fact, many firms are so sensitive to tariff rate hikes that even just threatening to increase tariffs can have negative economic consequences.
Anyway, the rest of the world wouldn’t agree
Perhaps even more crucially, the United States would find it hard to persuade its trading partners to accept a deal that is worse for them and violates the nation’s previous commitments to boot. What would the United States give them in exchange? If it allowed its trading partners to raise tariffs on U.S. goods, that would surely hurt American businesses and workers, as other countries would no longer want to buy the newly expensive U.S. exports. If the United States’ trade agreements completely fell apart, the nation could face expensive trade wars, as it has in the past, in which countries try to harm one another by raising their tariffs on goods.
Unilateralism may have significant long-term consequences
Might the United States just not bother to consult its partners and instead raise its tariffs unilaterally? This would have its own problems. Unilateralism tends to be unpopular abroad. It might have negative economic and security implications for the United States by damaging trust and straining friendships. Furthermore, unilaterally raising tariffs at the rates proposed by the candidates would clearly violate international law. Through negotiations at the World Trade Organization (WTO), the United States has committed to provide low tariff rates for all WTO members, generally speaking.
If the United States blatantly violated that commitment, it could be sued at the WTO, and if it were, it would almost certainly lose the case. Other countries could then question the U.S. commitment to international laws in general. Americans probably would disapprove of such an outcome, as the public seems to care about the nation’s trustworthiness internationally and about its compliance with international laws.
These actions therefore would have serious long-term implications. In particular, if the United States becomes known as a country that backs out of its trade commitments, why would other countries stick to their end of agreements with the United States? If countries expect that the United States will not honor its promises, recent scholarship suggests that they might refuse to trade with or engage with the nation more broadly, in what my research describes as a “political hold-up problem.” This could seriously undermine international cooperation – a system that the United States has worked hard to build and enforce over time.
Finally, backing out of trade agreements could deal a major blow to U.S. credibility in non-trade domains. Perhaps U.S. integrity in finance, security and other areas would be called into question, as research demonstrates that these types of policies often rest on the United States’ reputation for compliance with its commitments. This is why the United States takes its trade obligations seriously – and why it may be dangerous to stop doing so now.