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The Case for Free Trade

May 2, 2019 in Economics

By Scott Lincicome

Scott Lincicome

The policy of free trade — citizens freely buying and
selling goods and services across borders without government
interference — is under greater attack today than it has been
in decades. Despite the fact that American public support for trade
and globalization is at an all-time high, politicians, pundits, and
a growing cadre of wonks on both the left and the right have become
increasingly hostile to the long-standing U.S. political consensus
in favor of multilateral trade liberalization. This hostility,
however, is mostly misguided. Although it contains certain nuggets
of truth about, for example, Chinese mercantilism or onerous
trade-agreement rules, the case for free trade — economic,
geopolitical, and, perhaps most of all, moral — is as strong
today as it was when Adam Smith wrote The Wealth of
almost 250 years ago.

Trade and globalization have provided undeniable economic
benefits for the vast majority of American families, businesses,
and workers. Most obvious are the consumer gains. Several recent
studies have found that freer trade with China, for example, has
generated, through increased competition and lower prices, hundreds
of billions of dollars in U.S. consumer benefits — benefits
that, according to economists Xavier Jaravel and Erick Sager, are
the equivalent of giving every American “$260 of extra
spending per year for the rest of their lives.” Consumer
gains from imports, in general tilted toward the poor and the
middle class, are especially tilted toward them when it comes to
goods that are made in China and sold at stores like Walmart. The
magnitude of such benefits also debunks the well-worn myth that
free trade is mainly about cheap T-shirts. Indeed, trade’s
consumer surplus is a big reason that Americans today work far
fewer hours to own far better essentials than at any prior time in
U.S. history.

Then there are trade’s overall benefits for the economy. A
2017 Peterson Institute paper calculated the payoff to the United
States from expanded trade between 1950 and 2016 to be $2.1
trillion, increasing U.S. GDP per capita and per household by
around $7,000 and $18,000 — with benefits, again,
disproportionately accruing to households in the bottom income
decile. The U.S. International Trade Commission, moreover, found in
2016 that U.S. bilateral and regional trade agreements such as
NAFTA generated small but significant annual increases in GDP, as
well as in employment and real wages among highly skilled and less
skilled American workers. As the American Enterprise
Institute’s Michael Strain has noted, trade-skeptical
populists who downplay this impressive macroeconomic boost ignore
that, as our current economic moment attests, a small bit of extra
GDP growth can mean big things for lower-wage, lower-skill workers
in terms of employment and possible …read more

Source: OP-EDS

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