Shots are being fired, but if even before this trade war started we’ve been shooting ourselves in the foot.
At the start of this month the new U.S. tariffs on imports from Canada went into effect. Not surprisingly, our friends to the north responded with similar taxes on U.S. goods.
Despite claims of national security, or the need to protect U.S. workers, no one wins from a trade war. For our people and our economy to benefit, policymakers need to free up trade in all goods and services, not restrict it. Even before all this started, U.S. policy was not trade friendly.
The known benefits of free trade across borders go back centuries. In the seminal book on economics, “An Inquiry into the Nature and Causes of the Wealth of Nations,” Adam Smith explained the benefit to all when we specialize and trade. Not long afterward, fellow economist David Ricardo demonstrated that there are benefits even when wealthy countries like ours trade with poorer nations.
While the economic theory is fairly straightforward, the empirical facts are even more telling; data from the Canada’s Fraser Institute shows that those countries with highest freedom to trade have average incomes nearly seven times those that restrict trade.
Unfortunately, politicians often treat international trade as a contest where one side has to lose. Supposedly, if we are importing more goods from some other country, we must be losing the game. In fact, the reverse is true. When we run an annual trade deficit with the rest of the world, it must be the case that we have the income to buy more from others than we sell to them – that is, we are better off.
When it comes to international trade negotiations, we are often our own worst enemy. Economists question why, for example, the U.S. government subsidizes certain products, like purchasing large portions of our annual raisin crop or sugar production. Steel is the industry in question today, but why do we place import taxes on another important part of automobiles, tires? Subsidies and tariffs like these come at a cost to consumers and hinder our ability to sell other goods and services to the rest of the world.
Idaho should champion change, as we know the benefits of trade. According to the Idaho Department of Commerce, export sales by Idaho companies are more than $5 billion annually. Idaho products make their way to more than 156 countries, including China, Mexico and Taiwan.
But the benefits of these sales are unlikely to grow, or might even be lost, if President Trump’s current battles escalate. Canada’s most recent retaliation includes Idaho beef products.
So stop the trade war! And furthermore, if we want the economy to continue to grow, the U.S. needs to liberalize trade across the board.
Peter Crabb is professor of finance and economics at Northwest Nazarene University in Nampa. Pcrabb@nnu.edu.