In an attempt to reassure his support base that he has not cosied up to President Xi Jinping after being given an emperor’s welcome in Beijing, US President Donald Trump has decided to impose up to US$100 billion worth of tariffs on Chinese imports to the US. While it is tempting to brush this off as just another one of Trump’s irrational fits, the threats to free trade are very real. With rising discontent towards the “globalist order”, it is time to reassure people that free and fair international trade is the way to go.
The follies of Trump’s new tariffs are easy to spot. It is trite economic theory that an imposition of a tariff will lead to a net welfare loss in society. The gain by domestic producers will almost certainly be less than the loss in consumer surplus – defined as the benefit that consumers gain by purchasing at a price below what they are willing and able to pay. The statistics from the last round of steel tariffs imposed by the Bush administration confirm this view.
Moreover, given that a lot of manufacturers depend on Chinese steel and machine imports for their business, US producers are also likely to lose out. The increase in their production costs as a result of the tariffs will translate into higher prices for their customers, which leads to a fall in demand in their goods. With the majority of Trump’s support base belonging to the white working class, it is unclear how effective this flag-waving exercise will be.
Although it may be easy to see such irrational actions as the preserve of the ultra-nationalistic American right, those of us on the other side of the political spectrum are often just as pessimistic about free trade, albeit for “kinder” reasons. Lower barriers encourage developing countries to deregulate and attract foreign investment at the expense of workers. Businesses in well-regulated jurisdictions can take advantage of free movement to exploit workers from less-regulated jurisdictions, at the expense of the local population. The influx of eastern European workers in Britain, for example, allows businesses to keep wages low, as those from less-developed countries are willing to accept lower pay and poorer working conditions than their local counterparts. Indeed, this was the view of many eurosceptics, including Jeremy Corbyn, who have denounced the EU has a Thatcherite conception that aids the exploitation of the working class.
However, the problem with this view is that it misses the crux of the problem – regulation. To blame free trade for all the troubles that workers face ignores the fact they can be solved with more robust legislation on working conditions and pay. Furthermore, the imposition of barriers to free trade invariably stirs up nationalist fervour, which is counterproductive to the internationalist cause that the left generally promotes. While it is perhaps more acceptable to oppose free trade for the benefit of workers, it is both ideologically inconsistent and ill-advised.
To preserve the economic benefits of free trade, it is time for governments around the world to address the legitimate concerns surrounding workers rights, and implement measures to dampen the effects of free movement. With better protection against abuses, it will only be Trump and his flag-wavers left on the wrong side of history.