One of the promises at the center of Donald Trump’s presidential campaign was to put Americans back to work. The message that Trump is selling is that the United States has been ransacked by foreign nations and businesses. Cheap imports, cheap labor from Asia and Latin America and a combination of tariffs and subsidies have worked to damage American companies and encourage American jobs to move elsewhere, leaving millions jobless.
Trump has already done much to address this perceived problem. One of Trump’s first actions as president was to withdraw the U.S. from the Trans Pacific Partnership. In discussing his tax plan, Trump has proposed imposing tariffs on imports and granting subsidies for exports, all in an effort to support American business against foreign competitors. To many in the public, these actions and policies are viewed as good, pro-business policies that will benefit the economy as a whole. While some of Trump’s proposed policies, such as diminished government regulations, might be beneficial to the economy and American business, Trump’s ideas on trade and foreign competition have the potential to be disastrous.
Why are they disastrous? Simply put, Trump’s ideas about free trade and foreign competition are anti-market. This statement may be surprising to some. After all, Trump has been heralded (or in some circles derided) by many as a pro-business politician. A popular line of thinking goes, “Trump is an accomplished businessman, so who would know what is good for business and the economy better than Trump?” Underlying this line of thought is a false premise. This premise is that pro-business means the same thing as “good” for the economy. The type of policies that are good for the economy are pro-market policies. Pro-market policies are policies that make it easier for companies to form, enter and exit markets, and policies that allow for free, unrestricted trade between nations. Much of the wealth that has been built in the U.S. over the last decade or so has been driven by increasing free trade across the globe. If the U.S. economy is to continue to grow and reach the four percent annual growth rate aimed for by President Trump, then free and unrestricted trade will have to, at the very least, continue if not increase.
Trump’s protectionist “America First” rhetoric is antithetical to this objective. If Trump institutes the tariffs and subsidies that he has suggested, there will certainly be retaliatory policies by America’s trading partners. If the U.S. places high tariffs on Chinese goods, it is likely that China will respond in kind. Trump would risk a trade war, which would result in fewer exports, higher prices and less business. Trump would strangle the American economy with his protectionist measures. However, protectionist measures is not a misnomer in this case.
Certainly Trump’s proposed policies would be protecting someone. That someone would be existing business, and therein lies the difference between pro-business and pro-market. Whereas pro-market is concerned with creating a market and economy that works for everyone with no special treatment, pro-business is concerned with creating a market that works for existing businesses and protects them from external threats. A market economy grows due to a cycle of job destruction and creation. Jobs are destroyed when companies fail due to competitive forces, while at the same time resources are continually reinvested in more efficient areas leading to the creation of new jobs and overall economic growth. Trump’s policies would disrupt this cycle, resulting in inefficiency and higher prices.
Unfortunately the policies of Trump have become the policies of the Republican Party. Perhaps the most alarming aspect of Trump’s presidency has been this shift of the Republican Party from a pro-market party to a pro-business party. Frustratingly there has been little criticism of this aspect of Trump’s presidency. Amid all the outcry over Trump’s travel ban, and the appointment of Betsy Devos as Secretary of Education, it is almost as if it has gone unnoticed that Trump’s cabinet is full of insiders, lobbyists and big business executives whose net worth numbers in the billions. Tough a few bastions of free-market supporters remain in congress, such as Senator Rand Paul and Congressman Justin Amash, pro-market thinking has been relegated to a fringe corner of the Republican Party, and the consequences of this shift may prove disastrous.