Free trade deals aid economy but hurt vulnerable individuals
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Long revered as an emblem of global connectivity and beneficial to world peace, free trade has recently come under fire from all segments of the American political spectrum. President Donald J. Trump was hard on trade during his campaign, claiming that he would be the one to tear down the entrenched institutions that define the global marketplace. While most Americans have strong sentiments on trade, many, even seasoned politicians, sidestep the issue when it is raised.
In general, economists agree that free trade makes the economic productivity of a country grow by allowing countries to focus on the sectors in which they have a comparative advantage. For the United States, this most often means high tech industries like medicine, software and entertainment.
Conversely, the industries that the United States does not have a comparative advantage in falter the most, chiefly sectors like manufacturing. The high labor costs of the United States can never compete with those of China or Mexico. So, while economic productivity as a whole grows, the growth is not evenly distributed throughout the economy.
Besides industries the US has comparative advantages in, the main beneficiaries of free trade are consumers. After the North American Free Trade Agreement (NAFTA), which is a free trade agreement between the United States, Mexico and Canada, was ratified on January 1, 1994 by Bill Clinton, the share of average family income that was spent on products affected by free trade (i.e. imports that were now cheaper) decreased by 15 percent, even though Americans were consuming more of these goods.
The big issue with free trade is that it is concentrated loss for diffused gain. The consumers benefiting from free trade often take for granted the lower costs of goods, but workers affected lose jobs and their livelihoods. An airplane plant cutting thousands of employees is more newsworthy and powerful than import prices dropping slightly over the span of the decade, so most people’s perception of free trade focuses on the negatives.
With all free trade agreements, there are going to be winners and losers within an economy; unfortunately, the US has forgotten about the losers. Displaced workers may receive some government assistance through maintenance payments or re-training programs, but on the whole, it has not been enough to offset concentrated job losses.
In the future, there needs to be a slow, steady transition to free trade to allow industries that are getting damaged to decline safely, without any rapid loss in jobs or wages. Tangential to this is that every trade agreement needs to be accompanied by a plan to strengthen the social security net.
People should not fear free trade because of its ugly appendages and should not let the media or boisterous politicians like President Trump instill fear on the matter. Free trade is good for an economy, but some workers do get hurt.
The issue should not be approached with such starkly polarizing opinions, but rather a nuanced view of how trade affects everyday Americans, both as consumers and workers.The public must use their voice and be more involved in the entire process because, ultimately, change comes from within.
Too often these conversations are done behind closed doors and corrupted by special interests (like big business) with little concern for the worker. Instead of sidestepping the divisive issue, people must educate themselves about the intricacies of trade. The solution to this dilemma is not stringent protectionism, but active democracy.