Politics or Problem Solving? Defusing the Trade War Threat of the 2016 Election

Businesses and individuals can earn money when they solve problems or entertain others.  While the world of politics has certainly become more entertaining, it has lost the ability to actually solve problems.  There may be a significant number of people who find politics entertaining, but the audience is not large enough to sustain the enormous financial and social cost of political dysfunction.  If those employed in the political industry expect their jobs to exist in the near future, they must become more useful by learning to offer better solutions to problems.

Instead of bemoaning the nomination of Donald Trump political figures need to provide what Trump gives his supporters and what he does not.  On the economic front, Donald Trump’s strength stems from his business expertise and his opposition to unpopular policies like NAFTA, CAFTA, and TPP.  Despite Bill Clinton’s embrace of free trade during his Presidency, Hillary Clinton has taken a position against free trade, thereby guaranteeing the halt of expanded free trade. A reversal of NAFTA could even be next.  For free trade advocates and the biggest beneficiaries of free trade, the threat of a trade war is a nightmare about to come true. ​

​In theory, a trade war is devastating to an economy, because it creates barriers to trade, thus starving the economy of economic activity.  Not only do increases in tariffs raise import and export prices, they undermine the sustainability of global production by raising the cost of outsourcing too quickly.  Sharp increases also create uncertainty, which inhibits consumer spending and capital investment.  This, in turn, helps stall and destabilize the economy.   On the other hand, anti-free trade sentiments do not have to result in a trade war.

The Intelligence Unit of The Economist has determined the election of Donald Trump is the sixth greatest threat to the ability of businesses to reach “target profitability.”  Where uncertainty surrounding what President Trump’s public policies would look like and his provocative nature are factors in this threat assessment, the largest concern seems to be that “he has been exceptionally hostile towards free trade….” Reflecting on the media coverage of this assessment, which characterizes Trump as a threat to “global stability” and “the global economy,” it is clear how high world elites prioritize “free trade.”

This threat assessment fails to recognize Trump is not the problem.  Donald Trump is fulfilling the promise of democracy by representing the growing backlash against free trade and the manner in which trade agreements, such as NAFTA and TPP, are negotiated to serve special interests.  The push for free trade, in general, fails to recognize the widespread lack of faith in “free trade” and the belief that free trade is a net negative to average people.  Where pro-free trade advocates like to trumpet around statistics that demonstrate the aggregate benefits of free trade, the apparent economic impact of free trade on the average individual’s finances is harmful. 
There are benefits to free trade, but there are also costs and those costs have created financial problems for average people. Unfortunately, most of the pro-free trade arguments tend to be one-dimensional while neither side can fully support their conclusion.  Quite frankly, the endless back and forth between free trade opponents and advocates has done little to address public concerns or support better economic policies.  In other words, politics and socioeconomic forces are polarizing people into two camps: those who support free trade and those who resist trade with true protectionist policies.  

Because growing anti-free trade sentiments are pushing America, and the world, toward a global trade war, the failure of Donald Trump to become the next US President will not abate this movement against free trade.  The best course for the political elite and policymakers is to avoid a trade war by embracing trade instead of forcing free trade onto the Peoples of the world. Instead of feeding opposition to trade and provoking a dramatic embrace of trade wars, which the American People do not seem to fear, the best course is to turn to diplomacy.  It is necessary to confront this misalignment of the population’s interests and public policy. 

Given that domestic governments must tax businesses at uneven rates and regulate industries according to their capacities and needs while government involvement in the economy is unavoidable and workers must be paid in line with their cost of living, free trade policies do not create “free trade” and cannot offer the predicted benefits of free trade.  In other words, free trade in practice does not equate to free trade in theory.  The removal of tariffs distorts the economy in favor of imports, thereby catering to special interests instead of fostering sustainable trade; whereas, the removal of technical barriers fosters trade by making it easier.

The biggest issue with tariff-free trade is that it deleverages workers and localized businesses by forcing them to compete as part of a global workforce struggling to provide for global demand. Because free trade essentially turns the global economy into a lowest bidder economy, the future bargaining power of workers in poor countries is also hindered.  Based on “supply and demand,” a massive global workforce without enough work means workers face downward pressure on their wages.  Conversely, the need to enhance global supply to meet global demand puts upward pressure on the cost of natural resources and goods. 

The economic interests of trade partners shift very rapidly with the changing nature of the economy, especially in an era defined by democratic uprisings and a pull back from rapid globalization to community-centered thinking.  Because a stable global economy depends on healthy national economies, national economies must be built on industries that serve the local needs of a people with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy.  As such, trade agreements must be recalibrated regularly to reflect shifting economic interests, yet are not.

Moreover, the anti-free trade stances of Donald Trump, as well as Hillary Clinton, should not be seen as threats.  They are opportunities to recalibrate public policy to better fix the economic interests of the American People while it is a chance to build closer diplomatic ties with America’s trading partners.  In times of uncertainty, people tend to seek security by shunning change.  Advocates for free trade agreements are no different.  Instead of risking a trade war by inaction, political elites need to solve the underlying problems with improved trade agreements that actually address the interests of the American People.