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Don't Scapegoat Trade

This Presidential election cycle has emerged as one of the most unusual in recent years, and not only for the obvious reasons. For the first time since before World War II, both candidates are seriously questioning the benefits of freer trade.
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This Presidential election cycle has emerged as one of the most unusual in recent years, and not only for the obvious reasons. For the first time since before World War II, both candidates are seriously questioning the benefits of freer trade. And both Vice Presidential nominees, each a long-time supporter of freer trade, have been forced to back-track in order to align their position with their running mates. Moreover, this skepticism has spilled over to Congressional races. In key House and Senate contests, such as the tight race between GOP Sen. Pat Toomey and challenger Katie McGinty in Pennsylvania, both the Republican and Democrat are actively opposing the Trans-Pacific Partnership (TPP), the yet-to-be ratified free trade deal among 12 Pacific-facing countries.

To be sure, many candidates in the past - more often Democrats - have expressed deep reservations about a liberal (open) trade agenda and specific trade deals during the campaign, only to reverse course once in office as they were relieved of electoral pressures and came to appreciate the importance of U.S. leadership in international economic policy. In 2008, then candidate Obama expressed concerns about NAFTA and the dislocations associated with trade. However, after the election he helped to ratify the Central American Free Trade Agreement (CAFTA) and negotiate the TPP. Even when they have supported these agreements, sometimes that support has come with conditions. In 1992, candidate Bill Clinton, running as a centrist Democrat, endorsed the controversial NAFTA agreement, but insisted on the addition of "supplemental" agreements on labor and environmental protection which were negotiated once he took office. These elements have been included in every trade agreement the U.S. has pursued since.

The past, however, may not be prologue this time around. Hillary Clinton supported the TPP while Secretary of State but has since had a change of heart. Longtime Clinton adviser and Virginia Governor Terry McAuliffe let it be known that he thought Clinton would reverse her position once elected. The Clinton campaign quickly repudiated that suggestion, a position reiterated on the campaign trail.

Why this scapegoating of trade? Obviously, Americans are experiencing deep economic uncertainty and anxiety, aggravated by Donald Trump's nativist rhetoric. Wages are stagnant and underemployment is high, even as overall unemployment is at historic lows. While analyses by the National Bureau of Economic Research of the impact of China's accession to the World Trade Organization found that U.S. workers in some low skill sectors were hurt, especially when they were not able to relocate, the impact of a specific trade agreement such as TPP on our economy is marginal; American tariffs and investment restrictions are already quite low and further reductions will have little immediate impact. Indeed, these effects would be hardly noticeable in the short term, given that there are more than 5 million Americans hired each month and about the same number of "separations", voluntary or otherwise.

Rather, benefits will accrue over the longer term as U.S. companies gain access to growing markets that have historically been more closed to our products than the other way around. In addition, the TPP includes the very labor and environmental commitments first pioneered in NAFTA, providing further protections to ensure a level playing field among its signatories. More broadly, failure to ratify the TPP would be a major setback for U.S. leadership in the Asia-Pacific region.

Whether you are for or against freer trade, most concede that globalization is inexorable and nearly irreversible. Our economy is inextricably linked with those of other nations, and this integration has many benefits, including lower prices, access to a greater range of goods, insurance that other countries will not block our exports, and reduced tensions with trading partners. Further, for those concerned about unsustainable immigration, one unheralded benefit of freer trade agreements such as CAFTA, is that they provide economic opportunities in developing countries that then reduce pressure for migration to the U.S. The problem is that these benefits are diffuse, while costs in the form of lost jobs and closed factories, are highly concentrated. Given this, the U.S. should do a better job of compensating those hurt by trade. Germany, one of the most open economies in the world, has demonstrated that trade adjustment through vocational training and apprenticeships - subsidized by the state - can be highly successful.

Interestingly, a recent poll found that more Democrats (60 percent) than Republicans (51 percent) agree with the statement that "free trade with foreign countries is good for America," and support is higher in swing states. Yet, it seems likely that few among this majority would withhold their support for a candidate based on an anti-trade platform, while many in the minority would not vote for a pro-free trade candidate. Clearly, the two presidential candidates understand this reality.

In the end, trade is neither the cause of our economic difficulties nor is it a panacea for them. Unfortunately, our economic challenges are complex, involving education, training, tax and wage policy, and many other factors. In announcing support of NAFTA in 1992, Bill Clinton said, "One of the most difficult problems in modern politics and therefore in this Presidential election is the simplistic and superficial labeling of complex issues." Today's politicians would be wise to heed this message.

Most importantly, trade has impacts that go far beyond short-term economics. It reflects what is best about Americans and our national identity: open, confident, outward-looking, optimistic and ready to take on the world. One can only hope that despite the rhetoric of this campaign season, these values will prevail.

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