“I was on a picket line in the early 1990s against NAFTA, because you didn’t need a Ph.D. in economics to understand that American workers should not be forced to compete against people in Mexico making 25 cents an hour.” This statement by Bernie Sanders at a recent Democratic debate has been quoted with approval by many media commentators and other public figures. This is representative of the long-held disdain for free trade among the American left. However, it is not just aging socialists who have a problem with free trade: Republican front-runner Donald Trump has also placed protectionist policies at the heart of his campaign.
This continued and growing animosity towards free trade is the result of misunderstandings and a failure to grasp basic economic principles. Sanders, Trump, and their supporters are peddling the idea that free trade between nations must be opposed as it destroys jobs in the United States. They argue that, in order to protect US jobs, the Government should adopt protectionist policies.
Sanders and Trump are wrong. There is much that could be said about the benefits of free trade. However, let us focus on the myth perpetuated by Sanders and Trump that free trade destroys jobs.
Free trade does not lead to long-term unemployment. Although it is sometimes the case that free trade can lead to lower wage rates and unemployment in certain sectors, this is only ever temporary.
This is because free trade leads to lower prices for the goods and services which can now be easily imported from other countries. As a result, although nominal wage rates are lowered in certain sectors, there is an increase in real wages for everyone in the economy as a result of lower prices. This gives consumers extra disposable income which they are then free to spend. This leads to increased demand, rising profits, and increased investment in these sectors. This naturally leads to more jobs being created and acts to offset any unemployment occurring as a result of free trade.
Sanders and Trump seem determined to continue propagating the myth that free trade destroys jobs. Whether this is done out of economic ignorance or simply a desire to further their own political careers and promote their twisted ideologies, remains unclear. What is clear, however, is that free trade does not destroy jobs.