For its latest cover story, posted online Saturday, Barron's commissioned Southern Methodist University economist Robert Lawson to study the relationship between trade and economic prosperity, measured in terms of per capita gross domestic product (GDP), GDP growth and per capita income among the lowest-earning tenth of the population.
Lawson began with the Fraser Institute's 2014 rankings of "freedom to trade internationally," which ranks countries on a scale from an utterly protectionist 0 to a perfectly open 10, characterized by "low tariffs, easy clearance and efficient administration of customs, a freely convertible currency, and few controls on the movement of physical and human capital." He sorted the 159 countries in the ranking into quartiles and looked at how these baskets of nations performed according to selected measures of prosperity.
The free-traders came out on top according to all three metrics (although in fairness, correlation does not necessarily mean causation). The top quartile had 2014 GDP per capita – that is, economic output per person – around twice as high the second quartile. Year-over year GDP growth from 1990 to 2014 was higher for the freest-trading quartile than any other. In an apparent rebuke to those who argue that free trade fuels inequality, annual per capita income among the lowest-earning 10% of the population was around three times higher in the first quartile than in the second. (See also, A Brief History of Income Inequality in the United States.)
Source: Barron's, "Donald Trump's Worst Idea: Trade Barriers."
The message appears to be that the U.S. is in fact benefiting from its openness to trade, that it would be wrong to abandon our commitment to reducing barriers and risk cutting per capita output in half. (See also, Trumponomics: Trade.)
Not exactly. For all the campaign rhetoric that portrayed the U.S. as a sort of free trade berserker, foaming at the mouth and slathered in U.N.-blue war paint, the U.S. does not risk losing the benefits of falling out of the top quartile, because it already has. The country ranked 62nd in the Fraser Institute's ranking of openness to trade, putting it in the bottom half of the second quartile. With a score of 7.56, we're in the neighborhood of Cambodia, Malaysia, Bahrain, Taiwan, Serbia and the Gambia – way down the ladder from the open-border club of Singapore, Hong Kong, Ireland, the Netherlands and New Zealand.
In other words, it is right to say that free trade has left the U.S. behind, but not because we have wholeheartedly embraced the concept to the detriment of the non-globetrotting ordinary American. Rather, in Barron's view, we have been too resistant, falling out of the first quartile in 2009. Certain "high-lobby products" such as tuna (35% tariff), light trucks (25%), wool sweaters (16%), dairy products (20%) and peanuts (132%) are exempt from the country's 14 trade agreements. "If President-elect Trump wants to renegotiate America's trade agreements," Barron's Gene Epstein writes, "giving up those exemptions could be a good place to start." (See also, China Seeks Free Trade With Russia.)