Would Protectionism Create American Prosperity?

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Bernie Sanders supports protectionism as a way to boost America's middle class

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The 2016 US presidential primaries have witnessed a re-emergence of populist, protectionist rhetoric. Protectionism, as opposed to free trade, is a system under which countries impose duties, tariffs, or quotas which protect domestic producers by deterring imports and promoting exports.

Echoing the late 19th century progressives, Senator Bernie Sanders lambasts Wall Street tycoons as modern-day Robber Barons, while Donald Trump channels the Know-Nothing Party of the 1840s, asserting that immigrants are taking American jobs.

For both candidates, reforming American trade policy in a protectionist direction is a lever through which they hope to respectively “rebuild America’s middle class” or “Make America Great Again”. Although neither candidate has comprehensively explained how they would achieve their aims, they argue that protectionism could curtail America’s importation of cheap manufactures.

Senator Sanders’ disagreement with Hillary Clinton’s “establishment” free-trade policies was in sharp display at the March 6 Democratic Presidential Debate in Flint, Michigan.

America’s share of global manufacturing output has roughly halved from its post-WWII peak. Today, with job losses often coinciding with record-high corporate profits, Bernie Sanders argues that CEOs and Wall Street benefit from globalization while average Americans suffer as their jobs are outsourced. Linking trade to his core populist message, Sanders further argues that free trade functions similarly to tax cuts for America’s wealthiest – leading to increasing inequality and job losses.

At the Flint debate, Sanders attacked NAFTA (the North American Free Trade Agreement, which lowered trade barriers between the USA, Canada, and Mexico) for encouraging American companies to outsource jobs to Mexico, which has cheaper labor costs. Stressing that he voted against NAFTA in the 1990s, whereas Clinton’s husband enacted it, Sanders highlighted his record as a staunch defender of unionized labor.

More than 55% of Michiganders told exit pollsters that they believe free trade hurts American workers. Riding this wave, both Sanders and Trump prevailed in the Michigan primary earlier this month.

Sanders has yet to specify how he plans to reverse America’s existing free trade agreements like NAFTA. However, he has stated that he does not support the pending Trans-Pacific Partnership (TPP). He has also argued for dismantling the taxpayer-funded Export-Import Bank, pointing out that most of the Ex-Im Bank’s support goes to profitable mega-corporations, like Boeing.

Sanders, a proponent of democratic socialism, connects his protectionist trade policies to his plans to create jobs via vast infrastructure projects financed by government spending and tax increases on the super-wealthy. In so doing, he positions himself as a cross between Franklin Roosevelt, the president who led the New Deal, and Samuel Gompers, the anti-imperialist defender of American workers who founded the country’s largest union network.

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Hillary Clinton advocates a centrist path on trade

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As a proponent for lowering trade barriers, Hillary Clinton embraces her husband’s legacy of trade promotion through initiatives such as NAFTA. She wants to keep the US globally competitive by guaranteeing that American agriculture and manufactures have open access to the world’s biggest marketplaces. Clinton believes that the government should use diplomacy and taxpayer dollars to promote American exports through initiatives like the Export-Import Bank.

Clinton tempers her enthusiasm for free trade, however, with worries about long-term societal consequences. Abrupt job losses in places like the Midwest could result from bad trade deals, for instance, or the American marketplace could be flooded with cheap goods from Asia and elsewhere.

Since Clinton started campaigning against Senator Bernie Sanders, she has veered closer to protectionism. The former secretary of state came out in opposition to the Trans-Pacific Partnership (TPP) in 2015, the same free trade agreement that she helped negotiate under the Obama administration. Clinton explained that she supports the concept of expanding free trade with allies in East Asia, but ended up being disappointed with some provisions in the final version of TPP, which she believes would cause American jobs to leak overseas. Regardless of the rationale, her opposition to TPP represents a partially protectionist stance towards trade with East Asia.

Clinton, in other words, has positioned herself in a middle ground between the pure free-traders in the Republican establishment and the protectionist policies of Sanders and Donald Trump. This is despite the risk of angering her erstwhile supporters at centrist pro-trade outfits.

According to Chuck Dittrich, Vice President of Regional Trade Initiatives at the National Foreign Trade Council (NFTC), for example: “History and repeated economic analysis have proven that no matter how emotionally satisfying protectionism can be, the end result too often leads toward diminished competitiveness and innovation. Moreover, if met with like responses from trading partners [i.e. retaliatory provisions against American exports], an increasing downward spiral of the global economy.”

There also may be electoral reasons for Clinton to maintain this middle ground. Sanders has gained momentum by opposing neoliberal economics, and standing against free trade agreements (FTAs) is a key plank of this platform. Clinton has acknowledged that much of the support for Sanders has stemmed from the frustrations of those who have lost out due to economic competition.

Taking the middle ground during the primary also offers Clinton flexibility in the general election. If Clinton becomes the Democratic nominee and faces Trump, she could differentiate herself from his anti-free trade policies. Conversely, were Clinton facing a free trader like Cruz or Kasich, she could highlight her concerns for blue collar workers and her kinship with Sanders and Trump on issues like the TPP.

Most pundits assume that, if elected, Clinton would likely veer back towards the free trade proclivities that characterized her husband’s and Obama’s tenures in the White House. If this turns out to be the case, such an approach could re-establish the bipartisanship that has traditionally prevailed on the economic aspects of foreign policy.

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John Kasich says free trade is good for US diplomacy

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Since the end of the Second World War, there has been a presidential consensus on trade. In fact, promoting global free trade was a key objective of the 1944 Bretton Woods Agreement and a core, bipartisan tenet of American economic policy during the Cold War. Protectionism, on the other hand, is often blamed for worsening the Great Depression and has not been seriously pursued by any presidents since.

Of all the presidential candidates still in the running, Republican Governor John Kasich perhaps best embodies mainstream neoliberal economics, as well as America’s historic consensus on utilizing trade policy to reinforce diplomacy. It is important to keep in mind that any president’s positions on trade are structurally more meaningful than his views on taxes or appropriations, because the US Trade Representative is a part of the executive branch, meaning the president can more directly influence policy.

Kasich believes that minimizing trade boundaries grows America’s economy by assuring open markets for the country’s exports, services, and intellectual property, and as such helps create the high-value jobs of the future.

For instance, Kasich argues that halting wage growth among unionized workers keeps exports more competitive globally and prevents the rises in government workers’ salaries that create budget deficits. He has supported reforms that decrease organized labor’s bargaining power.

During the Republican debate in South Carolina, Kasich said, “I’m a free trader. I support NAFTA. I believe in the [TPP] because it’s important those countries in Asia [i.e. our TPP partners such as Japan, Vietnam, Singapore, etc] are interfacing [with us] against China.”

There are many precedents for this view. US free trade agreements with Middle Eastern allies, such as Bahrain, Morocco, Jordan, and Israel, bolster political alliances while producing commonalities of interests.

To free-trade proponents, protectionist policies seem increasingly counterproductive. Even if the customs barriers suggested by Senator Bernie Sanders were imposed, leading economists conclude that factory jobs would not come back to places like Detroit – automation and low wages in Asia and elsewhere guarantee that. Many industry experts therefore conclude that low-tech manufactures in the US simply cannot be competitive on a global scale. Moreover, as globalization has brought untold wealth and innovation to the world economy, it has also generated great complexity in most companies’ supply chains. The parts of every iPhone are produced in more than ten different countries. This makes implementing protectionist policies more complex than ever.

Kasich differs from his rivals Rubio and Cruz on trade because he is more concerned with implementing legislation which provides retraining for workers who might inadvertently lose their jobs in the wake of FTAs. Stressing this point, Kasich refers to himself as favoring “Fair Trade” rather than pure free trade.

 

 

For more articles and media by Jason Pack click here.

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