In recent weeks, trade has repeatedly come up in discussions and speeches by presidential candidates. Donald Trump says he would renegotiate NAFTA, while Hillary Clinton’s husband signed NAFTA in the 1990s. But both oppose the Trans-Pacific Partnership (TPP), a new trade agreement that could come up during the upcoming lame-duck session of Congress. What political leaders need to fundamentally understand when it comes to trade policy is that restricting international trade hurts American consumers. This idea that “Our country is getting ripped off,” as Trump has said, is mistaken.
Countries don’t trade with each other, people do. And people won’t make a deal if they think they’re getting ripped off. If I buy a foreign-made computer or car, it’s precisely because I’m getting a good deal.
Multiply that by the millions of decisions consumers make every day, and you get a meaningless statistic called the trade deficit that presidential candidates can cite.
Worrying about the trade deficit is a common mistake, and can lead to misguided and harmful demonization of foreigners. For example, when you buy something from a merchant in Japan, you pay in dollars. Since Japan’s currency is the yen, those dollars are useless to him. He can’t go to the grocery store and pay with dollars. So while you get a tangible good that you can use and enjoy, he is stuck with a bunch of green paper rectangles.
The Japanese merchant does have some options, though. He can use his dollars to buy something American-made, or invest in American businesses. One way or another, his dollars will eventually return to the United States, and Americans will benefit.
Trade is how to stimulate a moribund economy. It doesn’t matter if that trade takes place within a single neighborhood, across state lines, or across international borders. Buyers and sellers will only make deals if both parties expect to benefit. Preventing people from making good deals is a recipe for economic disaster.
The next president should not only refrain from adding additional trade obstacles, he or she should work to remove existing obstacles such as tariffs, quotas, and unnecessary red tape.