Macroeconomics

United States meets protectionism: anti-trade sentiment will not last further than the primaries.

Journalists seem alarmed by the fact that the Republican and Democratic primaries have the potential to shift a historical stance on U.S. trade policy. That is, most of the American governments during the 20th century can be characterized as free traders, and that there is a particular association between free trade policies with the Republican Party. This tradition seems to be forgotten as Donald Trump leads national Republican polls. Indeed, the real estate mogul claims that his trade policy will shift American policy from free trade to fair trade. His main argument stems from the assertion that China manipulates its currency thereby affecting American workers. Although political rhetoric may lure votes from radicals momentarily, consumer-voters will drive ultimately the opinion toward the effect trade has in their pockets, especially the Republican ones. In other words, the anti-trade sentiment will not last further than the primaries.

Donald Trump’s electoral coalition:

Paradoxically, nowadays the political far left coincides with the far right when it comes to blaming China for the economic stagnation of the United States. These two extreme positions may end up unexpectedly joining efforts for winning the White House. The fact that Donald Trump could steal voters, from the far left of the political spectrum by speaking against trade, represents a real threat to the establishment (either left or right). Thus, such a threat leads to the perception that it may contribute to building Donald Trump’s electoral coalition for the White House.

Nonetheless, any person may note that the campaign trial exacerbates the rhetoric as primaries demand presidential candidates to radicalize as much as possible. Bear in mind that the main goal of primaries is to reach out to the partisan constituency solely, which makes politicians deepen their positions. However, such a trend on radicalization tends to disappear once politicians get the party nomination. The challenge this time, though, is that there seems to be a tacit agreement between the two mainstream ideological stands. Both Democrats (Sanders) and Republicans (Trump) are pushing foreign trade into the political debate. Both sectors are calling for revisions of U.S. trade policies.

By Catherine De Las Salas

By Catherine De Las Salas

Both parties are getting into a widely known debate about the “perverse” effects of trade on domestic production. Unlike U.S., the world has known these arguments since the beginning of the Cold War, which made the United States took an initial stance against protectionism pushed by the geopolitical fight against the Soviet Union. With the “end of history”, as Mr. Francis Fukuyama would put it, it is time for the United States to meet protectionism. Perhaps this recent development in policy debates may change the current agreements. However, the discussion will tackle, sooner than later, the positive effects that trade has brought to the U.S. And certainly, those arguments are solid for trade.

The growth of household disposable income in the U.S. is mostly due to foreign competition:

Politically speaking, though, arguments for foreign trade discourage critical endorsements. Those arguments go beyond the support of radical views on the economy as well as beyond labor unions interests. For instance, between 1901 and 2005 “the average US household’s income increased 67-fold, from $750 to $50,302” (Dolfman and Mc Sweeny, 2006). That story is well known by now, and it might sound unrelated to foreign trade. But, the fact of the matter is that such a success would have never been achieved without foreign trade. Indeed, the effect is noticeable in the household income-household expenditure ratio. Household expenditure has been roughly 90 percent of household income since the beginning of the 20th century. The growth of household disposable income in the U.S. is mostly due to foreign competition.

Please read carefully, because such gains have been realized by Households, and not by corporations, makes a big difference. A stakeholder analysis would yield conclusions on how households outperform firms in getting benefits from trade, therefore, Donald Trumps’ stance. If there is a factor in the economy that has nurtured households’ welfare in the United States is the fact that trade has made consumer goods cheaper all history long. Hence, consumer spending is perhaps the largest component of US Gross Domestic Product.

Journalists may continue to agitate on this issue for some time moving forward in the presidential election while political rhetoric lures votes from radicals. However, the consumer-voter will drive the opinion towards the effect of trade in their pockets finally. In other words, the anti-trade madness will last until the consumer-voter takes the stage.

 

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