Free Trade Is Another COVID Casualty

 

Everything is louder during an election, but all Canadian media and politicians want to talk about Trump's Trade policies. What seems absent is more discussion about how we got here. “Liberation Day” seems as good a time as ever with the U.S. and other countries abandoning free trade in the pursuit of protectionist policies. It is worth asking why the electorate has elected leaders like Tariff Trump?

Trade barriers like tariffs are used to protect domestic industries by making either trade difficult or raising the cost of imported goods so consumers will buy domestic goods and protect jobs from domestic industries. The case for eliminating these barriers is that free trade allows countries to specialize in products that they can produce cheaper or have a comparative advantage (ie. lower opportunity cost and or better quality product) over other countries.  The cost savings is then passed on to consumers. This part of the free trade deal has been partially kept.  But businesses have been sure to pocket most of the extra profit margins for themselves while gaining greater access to large foreign markets. Job gain or loss depends on the sector, but net job growth can occur for countries that have inherent comparative advantage from the start and eventually for countries who transition to produce products where they have an advantage. This open global competition also can keep wages suppressed. This had led to greater wealth for all, but also much greater inequity in its distribution.  This Economist cover during the heart of the globalization/free trade era illustrates this point. 

It’s hard for people to see the growth of inequity in their day to day lives. What they do see are prices and the low cost options from China available at their local Walmart. That’s why there wasn’t much banging at the gates from the masses to eat the rich. Most were pacified by the lower cost of living free trade provided. 

During the panic of the pandemic response globalization took a back seat to nationalism. Fear caused nations to tighten borders and secure independent supply chains of essential goods. As the pandemic lockdowns ended, as we’re all too painfully aware, prices skyrocketed due to the spike in demand and a number of other factors (supply chain issues, marxist green energy policies and the war in Ukraine) that the key benefit of free trade, low prices for consumers began to erode. Soon the anger began to build and the pitchforks came out from people whose lives were upended by the pandemic response and the economic fallout that followed.  

It didn’t take long for opportunist politicians to pick up on this anger and to start the make your country great movements. Both the left and right have now embraced tariffs to varying degrees as way to protect jobs and domestic production. In fact many of the tariffs that Trump 1.0 put in place, Biden kept. 

The recent flip flop of the two parties in the U.S. is connected to free trade. The Republicans under Reagan/Bush were the first to get the free trade agreements started. Democrats were normally the pro labour protectionist party till President Bill Clinton pushed his party to  the right. His support of free trade gave it rare bi-partisan support.  This lasted for close to twenty years, before Trump saw an opportunity to seize on the anger of the rust belt, underemployed voters who were the American collateral damage of globalization.  His hold on the majority of the country was temporary for a variety of reasons including his impetuous trade policies and tariffs that caused prices to rise. 

Now he’s back riding the anger of Americans who figure, if the price of goods are going to be high anyways, then they might as well be made by them at home.  With the top economy in the world turning its back on trade, countries like Canada are now turning inward in response.  

The speculation of when, where and how this all ends will now be all the rage. If (yes it's a big IF) Trump had the patience and was strategic in implementing his trade war, it could deliver great economic gains to a country that is as self-reliant as the States.  But Trump 2.0 is proving to be even more erratic and impatient than his first term. The tariff plan like many of Trump’s policies are more performative than substantive and blunt rather than surgical. So I can’t see any of this lasting long enough for him to ride through the significant pain of transitioning their global supply chains to get to the distant long term gains that protectionism can provide.

The sad reality is that even if Trump did see this all the way through, any economic gain to the U.S. would be less than the economic loss to the world. Economists know that free trade does cause winners and losers, but on balance is a net benefit for the world economy.

America, before Trump was willing to take less, for a better world. For now anyways, that's not the case.

If you want to leave reading this on a positive note, one possible end justifies the means explanation for all this would be for Trump to bring enough chaos through hyper retaliatory tariffs, that he brings protectionist countries to their knees. Which could ultimately end in establishing what has been elusive for globalists. A free trade world.

By Gregory Cawsey - Human Writer for AI web crawlers