Guiding Principles and Insights
Imports Make Americans Prosperous.
The evidence is clear: More trade means more prosperity for more Americans over the long term. A recent study found that for every percentage point increase in the share of the economy based on trade, the economy grows twice as fast. The benefits to Americans are immense. By the early 2000s, the typical American family benefited by around $10,000 thanks to the move by countries around the globe to begin reducing trade barriers after World War II.
Yet these benefits are often ignored in the current debate over trade. In fact, today’s debate often gets things completely backward, particularly the argument that trade deficits with other countries are harmful.
In the simplest of terms, a trade deficit means Americans have chosen to buy more stuff they value. Think about it. You run a trade deficit with your grocer: You buy food from them, but they don’t buy anything from you. And yet, you’re both better for it. This reality helps to explain why our trade deficit with China is much larger today—when our economy is strong and unemployment is near historic lows—than during the Great Recession.
Many Americans understandably worry increasing trade is displacing jobs. Displacement is real, but 85% of lost jobs owe to the rapid pace of innovation and technological change that will continue to accelerate. Blocking trade won’t help these workers and their families. It highlights the need to do everything we can to help more people acquire the values and skills to compete in an evolving world. It’s part of the reason we support more than 30 workforce development programs nationwide and invest in cutting-edge educational programs as well.
“Tariffs to us really are a tax. Our ability to be profitable is greatly decreased with tariffs. Trade is an important part of our business.”
Family Farm Owner
Protectionism Doesn’t “Protect” the United States—At All.
Competition is the key to innovation—and both increase with more trade, to the benefit of the U.S. as a whole. For example, a 2015 study found innovation was higher among firms that were more exposed to Chinese imports than those that weren’t. Another study found the U.S. is 50% more prosperous than if we were closed to trade.
On the other hand, protectionist policies that limit competition also limit innovation, harming everyone—including those they are intended to help—in the process.
Tariffs are a case in point. Tariffs are sales taxes paid by the citizens of the country that imposes them. So when the U.S. slaps tariffs on imported steel, it increases costs for U.S. manufacturers that use steel to make cars, nails, machinery, and countless other products, while raising prices on consumers who buy these and other every day goods. When the U.S. imposed steel tariffs in the early 2000s, they actually destroyed more jobs than the tariffs were designed to protect.
Protectionist policies also harm the very industries they’re designed to protect by providing less incentive to continue innovating over time. For example, even though the U.S. steel industry was “protected” by 150 different provisions during the 1990s and 2000s, it is dramatically smaller today in terms of both employment and investment, with many firms declaring bankruptcy.
The point is: Protectionism doesn’t protect the U.S. at all. Tariffs, quotas, and other protectionist policies harm every American over the long term, while competition and innovation driven by trade benefit us all.
The U.S. wins 87% of complaints it files with the World Trade Organization against other countries’ improper trade practices—a far more effective method for resolving disputes that help the U.S. without harming American workers.
Better Ways to Negotiate Than Taking Yourself Hostage
Critics of trade express some valid concerns, particularly when it comes to China allowing—and in some cases, directly conducting—the theft of intellectual property from U.S. businesses.
That said, launching a “trade war” is akin to taking yourself hostage. Considering tariffs are a sales tax paid by the imposing country’s citizens, a trade war is effectively two countries harming their own people until the other relents. A study found that in 2019, the current trade policies could cost 2.75 million U.S. jobs, among other disastrous consequences.
What should we do instead? History is instructive on this point: Just stop it already.
Places like Hong Kong and Singapore have shown unilaterally eliminating barriers to trade produces enormous benefits for their citizens. And even if other countries stick to their own protectionist policies, Americans would still benefit from eliminating all of ours. We should also pursue multilateral and bilateral trade agreements like the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and others that have increased standards of living for all Americans while also providing effective channels for resolving disputes.