Why has the United States imposed a trade embargo against Cuba for many decades? The answer is that both Republican and Democratic politicians have understood that trade restrictions will hurt the Cuban economy.
Whether a Cuban blockade makes sense is a separate question (especially since the collapse of Soviet communism). But at least American politicians agreed with economists that restrictions on trade punish an economy and its people.
Yet many of those politicians (especially Trump and Biden) have imposed barriers on the ability of Americans to trade with the rest of the world. This is a bizarre disconnect.
Fortunately, there are some current and former Senators (at least on the Republican side) who are pushing in the right direction.
In a column in the Wall Street Journal from October 23, Rand Paul of Kentucky explained why free trade is the best strategy to achieve prosperity. Here is some of what he wrote.
Ronald Reagan knew what makes a nation prosperous. “Free trade serves the cause of economic progress, and it serves the cause of world peace,” he said in a 1982 radio address. …Sadly, many in my own party seem to have forgotten these lessons. A populist faction insists on imposing more and higher tariffs that would raise the prices of everyday goods and services… When tariffs are imposed on products like smartphones and laptops, as Donald Trump is proposing to do, American consumers end up paying higher prices. A report from the Consumer Technology Association projects that Mr. Trump’s proposed tariffs could raise technology prices for U.S. consumers by as much as 21%. China accounts for more than 90% of U.S. laptop and tablet imports. Its manufacturers won’t bear the brunt of these tariffs—American consumers will… A 2019 estimate…found that Mr. Trump’s first-term tariffs increased per household annual costs by $831 between 2018 and 2019. This disproportionately hurts low- and middle-income families. …We don’t consider someone’s ability to consume more a sign of poverty; the same is true of a nation. Rising imports often coincide with stronger economic growth. Trade allows the U.S. to specialize in high-skill industries and benefit from cheaper imported goods, leading to a more efficient and prosperous economy. …trade supports more than 41 million jobs in the U.S. economy. Since World War II, reductions in tariffs have contributed an additional 7.3% to American incomes.
Senator Paul’s point about the link between rising imports and prosperity is correct. Indeed, I wrote in early 2020 that Trump was “losing” on the trade deficit because the economy was prospering.
In other words, his good policies (like the 2017 tax cut) were so good that they offset the damage of his protectionism.
For what it’s worth, I fear we won’t have the same net plus if Trump wins again.
Now let’s see what a former Republican Senator from Pennsylvania wrote. Here are some excerpts from Pat Toomey’s column in yesterday’s Wall Street Journal.
Donald Trump recently declared that only stupidity could explain my opposition to his reciprocal-tariff proposals. …I understand the emotional appeal of trade-rules reciprocity—it satisfies an urge for revenge. But that revenge will be less satisfying for the working-class Americans facing unemployment and higher prices if Mr. Trump carries through on his import-tax promises. As I tried to explain to Mr. Trump when he was president, another country’s misguided decision to tax its citizens on what they buy from American manufacturers isn’t a good reason to punish Americans who wish to buy that country’s products. …Mr. Trump sees low tariffs as a concession the U.S. makes to other countries to our own detriment. But low taxes on imports give American consumers more choices, cheaper prices and a higher standard of living. Low tariffs also make American manufacturers more competitive: Imports and foreign competition allow for low input prices. Americans benefit the most from low tariffs. …Mr. Trump’s strategy would be reasonable if his tariffs were intended to persuade countries to lower theirs. Zero trade restrictions with allies is the economically optimal arrangement. If tariffs could get us there, they might be worth the try. But Mr. Trump declared himself “Tariff Man” because he sees trade restrictions as superior to free trade. No country has ever tariffed its way to prosperity. …the nations with the highest tariffs are economic basket cases, including Iran and Venezuela. The American economy has dramatically outperformed developed economies, such as Japan, that have pursued a more protectionist path.
Just as Rand Paul made a very good point about the link between imports and prosperity, Pat Toomey made a very good point about the relative prosperity of protectionist nations and free-trade jurisdictions.
I then observed that “the average per-capita GDP of the bottom-10 protectionist nations is $3,212 while the per-capita GDP of the top-10 free-trade nations is $46,550. More than 14 times higher!”
Seems like it should be obvious that being pro-trade is more conducive to prosperity than being anti-trade.
Though I should add that protectionist nations tend to have bad policy in other areas (such as regulation, monetary policy, fiscal policy, etc) while free-trade nations tend to have good policy in those other areas.
So I will acknowledge that trade is not the only reason why free-trade countries have 14 times as much prosperity as protectionist countries. But what push for any type of bad policy?
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
