Imagine if Donald Trump made a campaign promise that he would lower the pay of every American, but would ensure that the poorest 10 percent have their pay lowered the most. Would you vote for him then? Or imagine if Hillary Clinton said she would increase inflation substantially to make the economy more “fair” for everyone. Would she win your support?
Neither candidate has made such a claim—at least not directly. The American people would immediate reject such harmful economic policies, and politicians know they’d be rejected for making such inane promises.
In reality, though, both Clinton and Trump (as well as the candidates for the Green Party, Constitution Party, and the American Solidarity Part) have promised to implement policies that would have the same effect as increasing inflation or reducing pay, for all have proposed a means of lowering purchasing power.
Purchasing power is the number of goods or services that can be purchased with a unit of currency. There are several methods politicians can use to reduce purchasing power, but one of the most subtle and common is to increase barriers to foreign trade. As Nita Ghei says,
The benefits of freer international trade accrue to consumers in the form of increased choice and lower prices. More imports mean more bang for the buck, and that effectively functions like an increase in pay. Consumers either buy imported goods directly, like the finished shirt from Bangladesh, or they can buy an American-made good that includes imported components. When American producers have access to cheaper imports, they can increase production, create jobs and offer goods at a lower price.
There is significant evidence that lower-income Americans benefit substantially from imports, and higher trade barriers will impose a proportionately greater cost on the poor.
The poorest Americans tend to assume (mostly because they’ve been lied to by people that know better) that international trade hurts them. In fact, it is just the opposite, not only for those living in the U.S., but for the poor in almost every part of the world. As The Economist recently noted,
A study by Pablo Fajgelbaum of the University of California, Los Angeles, and Amit Khandelwal, of Columbia University, suggests that in an average country, people on high incomes would lose 28% of their purchasing power if borders were closed to trade. But the poorest 10% of consumers would lose 63% of their spending power, because they buy relatively more imported goods. The authors find a bias of trade in favour of poorer people in all 40 countries in their study, which included 13 developing countries.
If the lives of the poor are disproportionately improved by freer trade, then why do they so often oppose it? The main reason is because it’s much easier for them to see the negative effects of trade. If the factory you work at making widgets closes and the jobs move overseas, it’s easy to assume that the total economic effect is negative. What is more difficult to see is how many poor people are now able to buy widgets because they are being produced at a lower cost.
That is why protectionism has an innate appeal—it’s easy to see the effects—while free trade seems, well, foreign. Yet what many people don’t realize is that protectionism not only hurts the majority of consumers, it rarely helps the minority of workers it was intended to protect. As Ghei notes,
[P]rotectionist measures, like duties on steel, do little to halt the decline of that industry, which employs 140,000 people now, yet those duties inflict higher costs on steel-consuming industries, which employ over 12 million people.
Free trade is one of the few policies that almost all economists, whether on the left or right, agree is beneficial to the majority of the population. But economically ignorant politicians (see: Clinton and Trump) know that by championing protectionist policies (all while claiming that they are really for “free trade”) they can win the votes of people that don’t know better. That is why those of us who do know better have a duty to the poor to set the record straight. We can’t stop politicians from lying to them. But we can do our best to see that they discover the truth.
