According to a Washington Post/Schar School poll of Americans published on July 11, only 39% of respondents approved of US President Donald Trump’s imposition of tariffs on foreign countries, while 56% were opposed. But, while it’s good news that a majority of Americans oppose their president on this key issue, Trump is plunging ahead, apparently thinking the public will like the tariffs better when they are in place.
It is a puzzle why even 39% support these policies. Ever since the Great Depression and World War II, and the 1947 General Agreement on Tariffs and Trade, the United States – both its government and its people – has been squarely in support of free trade.
In his 1776 book The Wealth of Nations, Adam Smith provided an eloquent and convincing argument for free trade, instead of trade distorted by tariffs. With free trade, the economy prospers because goods and services are sourced from the countries that are most productive in creating them.
Smith’s book was much talked about from the beginning, and the evidence supports its argument. Economists Jeffrey Frankel and David Romer have confirmed that individual countries that have freer trade have higher economic growth, and that this is not just reverse causality from growth to freer trade.
So, why are we seeing so much public support for a US-initiated trade war now?
It must stem from the job insecurity sometimes imposed by free trade, and the sense of injustice that arises when one is among the losers. Most people do not want charity. Voters in the United States responded well to “Make America Great Again.” They did not respond well to former President Barack Obama’s “spread the wealth around.”
Political scientist John Ruggie made the case in 1982 that post-World War II multilateralism and free trade was the result of a “compromise of embedded liberalism.” A multilateral system and low tariffs could be politically viable only if government intervened to stabilize citizens’ economic lives.
The economist Dani Rodrik has provided further evidence supporting Ruggie’s point. Using data from 125 countries and controlling for other factors, Rodrik found a positive correlation between countries’ economic openness and the share of government expenditure in their GDP; that is, more open economies spend more money relative to their size for goods and services for their citizens. High-trade countries are not small-government countries: it is just the opposite.
The total value of government consumption is much more important than the temporary unemployment insurance offered by many countries, or programs such as Trade Adjustment Assistance in the US. Trade Adjustment Assistance allows people who can demonstrate that their jobs were lost to foreigners because of free trade to receive temporary compensation while they find a new job. Obama wanted to see such assistance, which began with the Trade Expansion Act of 1962, expanded further, by creating wage insurance. But even this modest proposal was not enacted.
In my 2003 book The New Financial Order, I argued in favor of privately issued “livelihood insurance,” which protects against long-term loss of income and sets premiums on the basis of occupation and training. But while such programs could encourage occupational risk-taking and economic growth, they are not being implemented.