Since the end of World War Two, the United States has been opening up free trade with the rest of the world. The free movement of goods has allowed more countries to prosper, creating a more peaceful world.
However, there is a threat to this peaceful practice from the most recent Republican administration. Since coming to office, President Donald Trump has threatened to withdraw from NAFTA, tried to build a border wall between the U.S. and Mexico, talked about leaving NATO, and has actually withdrawn from the TransPacific Partnership and changed our relationship with Cuba.
What does this all mean for the world—and your business?
To find the answers, I spoke with David Dreier, a political thought leader, former congressman, and one of the architects of the NAFTA agreement. While in Congress, Dreier founded the bipartisan Congressional Trade Working Group and was instrumental in every single free trade agreement into which the U.S. has entered, as well as Permanent Normal Trade Relations with China, Vietnam and Russia.
Why free trade is important.
We need free trade to promote peace and prosperity. One of the primary motivators for our government to implement free trade has been international peace. Dreier pointed out that the impositions of heavy tariffs (known as the Smoot-Hawley Tariff Act) during the Depression created worse economic conditions for the U.S. and abroad that helped lead to the rise of political extremism and leaders like Hitler.
Furthermore, the implementation of free trade has been instrumental in helping promote prosperity for all nations. Dreier cited the positive effects of NAFTA on our trading partner Mexico. Before NAFTA, Mexico City suffered a devastating earthquake in 1985. Due to the poor infrastructure, Mexico had at the time, more than 5,000 Mexican citizens died, with over 30,000 injured.
However, after NAFTA was implemented, Mexico was able to prosper and invest in its infrastructure. When another heavy earthquake hit Mexico City in 2017, the number of resulting deaths was fewer than 400. NAFTA had saved lives. And it increased the trade of goods in the U.S.
Tariffs are just a tax by another name.
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Despite the claims of the current administration, tariffs are taxes. They raise prices for businesses and consumers alike. Even the threat of a tariff is enough to raise prices. Dreier pointed out that the price of steel went up 30 percent after the Trump administration said they were considering tariffs.
Moreover, tariffs do not protect U.S. jobs. U.S. manufacturing jobs are not disappearing due to competition from other countries but rather from automation replacing routine tasks. Tariffs will not bring back jobs that have been eliminated due to companies becoming more efficient.
In fact, Dreier points out that studies show people who work in jobs with international trade have 17 percent higher income than those in domestic jobs. International trade benefits workers.
What businesses can do.
Dreier believes businesses should take a leadership role in showcasing the benefits of free trade. One of the reasons so many people are in favor of tariffs is their lack of knowledge about how trade works and the benefits of globalization (e.g., lower prices, more markets for goods and services).
One thing Dreier suggests employers do is to include the benefits of international trade in workers pay stubs. If workers see in their paycheck, how much trade is helping them, they will have a greater understanding of the benefits.
The end of free trade?
The good news is the Trump administration appears to be backing off the idea of sweeping tariffs—for now. However, businesses are not out of the woods. While it’s not the end of free trade as we know it, it is certainly under threat and the stakes are no less than world peace and prosperity.
