As the 2024 presidential campaigns ramp up, much media attention has focused on marquee issues like President Joe Biden’s age and former President Donald Trump’s continuing legal battles. As a result, less attention has been paid to a crucial concern for many economists and financial analysts: trade policy.
For decades, the United States enjoyed widespread, bipartisan support for free trade policies. Since the 1992 ratification of the North American Free Trade Agreement (NAFTA), presidents from both parties have signed dozens of agreements to facilitate global trade. Free trade policies are supported by economic theories that CMC students encounter as early as their freshman fall in Econ050. While international trade can produce relative winners and losers, it makes all nations better off in aggregate. Reducing barriers to import and export minimizes deadweight loss from tariffs and prohibitions.
In just the last decade, however, the free trade consensus has faced new scrutiny. Critics argue that free trade deals have actually been damaging America. They claim that, while some large companies may profit from open trade, everyday Americans are hurt because of the opportunities and jobs lost to foreign nations. American politicians have started to respond to this frustration over the effects of globalization with increasingly protectionist trade policies.
Donald Trump put this issue at the core of his 2016 campaign, promising to impose tariffs and pull out of free-trade agreements. Trump vowed to renegotiate deals to ensure that international trade policy was putting “America first.” Although it contradicted the long-standing conservative economic strategy of lowering barriers to trade, this sentiment was extraordinarily successful, particularly in Rust Belt states such as Ohio and Michigan.
Now President Biden has followed suit. His administration has imposed higher standards on trade partners’ environmental practices and working conditions. The Biden administration has argued that, since foreign competitors don’t enforce stringent child and wage labor laws or environmental standards, these nations unfairly gain an advantage over American companies.
This shift in the direction of American trade policy has raised alarm bells for foreign governments and businesses that have long benefitted from American trade deals. Large domestic corporations such as General Motors also heavily rely on these agreements. Trump’s recent announcements about tariffs have been especially concerning to international business leaders. Trump has promised to impose a 10% tariff on all imported goods. He has also floated plans to raise Chinese tariffs to 60% or higher.
Economists and financial analysts are wary of these protectionist trade policies. One global strategist at Rabobank, Michael Every, warned that such policies would “shake up every asset class–equities, FX, bonds, you name it.” If a 10% tariff on imported goods is enacted, the tax would “distort global trade, discourage economic activity, and have broad negative consequences for the U.S. economy.” By disrupting the global markets that the U.S. also relies on, further protectionist policies may hurt American businesses in the process.
While “America first” policies have been popular with American voters, they may come at the cost of damaging international relationships. Biden has expressed interest in engaging in trade with developing economies such as India, Brazil, and Indonesia. However, the Council on Foreign Relations recently released an article arguing that Biden’s turn against free trade will make it “hard to win friends.” In the article, Edward Alden argues that enforcing labor and environmental standards will halt trade with the same nations he is hoping to form relationships with.
Until the election, it will be important to monitor how corporations, international headers, and American voters respond to changing trade policy. The result will have major implications all over the globe.