By definition, a demagogue is a political leader who garners support by appealing to popular desires and prejudices, rather than by using rational arguments. Most presidential campaigns are demagogic in nature. However, with the exploding popularity of Donald Trump and Bernie Sanders, these campaigns, in particular, seem to take the cake. Both of these candidates leave most economists shaking their heads. However, it’s interesting to see that although Sanders and Trump are perceived to be polar opposites, they are nearly identical when it comes to free trade. They both argue that free trade and Free Trade Agreements (FTA) cost American workers and are ultimately negative for the country. In this case, the rational argument is that free trade has provided overwhelming positives for the United States and the world as a whole.
Free Trade Agreements are agreements signed by several member countries (typically in the same region) to reduce tariffs (taxes on imports) and quotas (quantity limits on imports) with each other. These agreements seek to increase trade among the member countries. An example of a Free Trade Agreement is NAFTA, which includes the United States, Mexico, and Canada.
The realities of free trade point to overwhelming positives, which directly contradict both Trump and Sanders. According to compiled research from The World Bank (Per Capita GDP), Food Policy Research Institute (Global Hunger Index), and Yale University (Environmental Treatment), the top 1/4th of countries with the freest trade have over double the GDP, have a lower hunger index, and also treat the environment better. Research by the Institute of International Economics concluded that trade agreements such as GATT and NAFTA have greatly increased world exposure to trade and have also increased national income by $1 trillion a year. In addition, it concluded that reverting back to higher 1930s era tariffs and trade regulations (such as Smoot Hawley) would reduce the United State's GDP by over two percent and it would increase to over four percent when the United State's trading partners inevitably retaliate by increasing their tariffs (also known as a trade war).
Common myths about NAFTA’s negative effects are challenged by the research compiled by the Center for Trade and Economics (CTE). NAFTA has not reduced exports with member countries. Exports with NAFTA countries have doubled exports to the rest of the world. Bernie Sanders proclaimed that NAFTA has caused significant job losses for working Americans due to foreign competition, which is false. Although the Economic Policy Institute (EPI) claims that NAFTA caused nearly 700,000 jobs to be lost in total, other manufacturing-oriented jobs were created in each quarter that countered these effects. The Department of Commerce concluded that the United States' exports to Canada and Mexico have supported over 600,000 more jobs now than in 1993. Furthermore, jobs that are supported by exports pay 13 to 16 percent higher than other jobs. Additionally, the National Bureau of Economic Research (NBER) concluded in a study that Mexico’s economy has grown the most, the United States' economy has grown the second most, and Canada’s economy has slightly shrunk in relation to NAFTA’s tariff reductions.
NBER also concluded in a different study that international trade benefits the lower class far more than the wealthier classes. This is because lower income consumers spend a larger share of their income on heavily traded food and clothing while much wealthier people rely more on services, which are harder to trade. Although Bernie Sanders repeatedly assures us that he looks out for the little guy, his hostility to free trade would suggest otherwise when one realizes that free trade mostly benefits the little guy.
Most of the time, economists don’t have much to get excited for during election season. Whether it’s pandering to special interests, nationalist fervor, or emotional feelings, politicians repeat economic falsehoods over and over. Donald Trump and Bernie Sanders continue to sprout repeatedly unsupported rhetoric about various economic issues and free trade is just one of those.
