At this point, it may not be appropriate to compare anyone to Donald Trump. In terms of overheated rhetoric, he is in a (low) class by himself. Nevertheless, I am struck by the parallels between Bernie Sanders and Trump on trade policy. Of all the remaining presidential candidates, these two are the most strongly opposed to international trade and to international trade agreements. While most of the candidates have something negative to say about trade, Sanders and Trump go the furthest in this regard, and, unfortunately, their views seem to appeal to a lot of people.

As we all know, Trump has been inflammatory on the subject of immigration and trade, which could be taken as a general dislike for and distrust of non-Americans, with a few particular groups demonized. Sanders is a little different. He’s not generally negative about foreigners, but now and then he says things in a way that makes me wonder if he is trying to tap into the same group of voters that Trump has in his camp. For example, in last night’s debate, Sanders said this:

… Look, I was on a picket line in 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.

Obviously, if Sanders had a Ph.D. in economics, he would be a free trader. But putting that aside, what exactly does Sanders have against people in Mexico? Yes, they are, on average, not as wealthy as Americans. But why does that mean they should not be allowed to sell their goods and services to Americans? Clearly, it would make them better off if they could (and their income has risen a lot since NAFTA was signed). Why should the U.S. government take action (protectionism) to keep them poor?

No doubt Sanders would say that this isn’t about keeping Mexicans poor, but rather about making Americans better off. Now, in fact, protectionism does not make Americans better off, so he’s actually hurting everyone. But regardless, even if he did believe his policies would make Americans better off, that wouldn’t change the fact that his policies would help keep Mexicans poor. Those are two sides of the same coin.

Overall, it is pretty clear that Sanders is no Trump. But still, the way his policies treat poor foreigners–and how that appeals to some of his supporters–leaves a bad taste in my mouth.

Trade has enriched humanity, continuously providing cheaper and better goods while dramatically decreasing global poverty. Extreme poverty’s end is now in sight. A Gallup poll released recently shows that 58 percent of Americans view trade as an opportunity rather than a threat, and this belief has been rising. Yet we seldom hear of the incredible benefits of exchange. The 2016 presidential election has brought with it an increased interest in U.S. trade with China, with political figures like Donald Trump prominently focusing on the alleged “harm” done by China to the United States. Here are the three main arguments that trade-skeptics use regarding China and reasons why those arguments are wrong. 

1) Trade-skeptics often claim that trade with China is “taking American jobs.” However, in most cases American and Chinese workers are not competing for the same jobs because they do different kinds of work. 

Comparative advantage and specialization play an important role in every trade relationship. China has the comparative advantage in light manufacturing and heavy industry, while the United States has an advantage in areas involving a high degree of human capital like technology, education, and precision industrial manufacturing. 

Fewer and fewer Americans work in grueling areas like traditional manufacturing and agriculture, both of which are still common in China. The fall in traditional manufacturing and agriculture employment has been more than offset by a rise in the caring professions and in creative and knowledge-intensive careers, which are safer, more intellectually stimulating, and help improve the standard of living in the United States. 

For example, the number of physicians per person has risen in the United States, and there are also more teachers per student. The graph below shows that, while manufacturing employment has decreased, total non-agricultural employment has soared.

2)Many people are concerned about China’s so-called currency manipulation. China, they claim, is keeping the value of the yuan artificially low relative to the U.S. dollar. That means that Americans pay less for Chinese goods. As Human​Progress​.org board member Mark J. Perry puts it, 

[T]he “manipulation” of China’s currency is actually to the distinct advantage of millions of American consumers (especially low-income Americans) and U.S. businesses buying products and inputs made in China. Those two groups certainly aren’t complaining about low-priced Chinese products, and in fact would be made worse off if China were forced to revalue its currency and in the process make its products more expensive for Americans.
 
So if neither American consumers nor U.S. import-buying businesses would benefit from a stronger yuan and a reduction in China’s “foreign aid” to America, who would really benefit? The same group that always benefits from protectionist, mercantilist trade policies: domestic producers who compete against foreign rivals in China and elsewhere … Unfortunately, the costs to consumers from protectionism are greater than the benefits to producers, resulting in a net economic loss for the country and a reduction in its standard of living.

In other words, while a few industries would benefit, the vast majority of Americans would be made poorer by America’s imposition of protectionist policies or penalties on China. 

3) China trade-skeptics often claim that trade leads to the exploitation of Chinese laborers and makes them worse off. However, as Cato’s Johan Norberg wrote, 

Western activists rail against “sweatshops,” but among researchers and economists from left to right there is a consensus that these jobs are the stepping stones out of poverty

Lest we forget, the United States and Europe had their own sweatshops during the Industrial Revolution. Work was often dangerous and difficult—though not as much as the drudgery of agricultural subsistence. Yet, as a result of the industrial revolution, life expectancy and GDP per capita shot up while poverty fell rapidly. Since economic liberalization, life expectancy in China has skyrocketed, nearing the U.S. level, and hundreds of millions of Chinese have escaped from extreme poverty. That represents the greatest reduction in poverty the world has ever seen. 

As prosperity has increased, gender inequality has diminished, and a smaller share of the population suffers from food inadequacy. If the trade-skeptics genuinely care about the wellbeing of the poor in China, they should support the most successful anti-poverty program of all time: economic freedom, including freedom to trade internationally. 

Earlier this week, Buzzfeed unearthed a 2005 blog post in which Donald Trump explained the economic benefits of outsourcing jobs overseas. The piece flatly contradicts the boisterously protectionist rhetoric of Trump’s presidential campaign. No doubt it will be added to the many arguments for why Trump can’t be trusted, but there’s really nothing special about Trump’s flip-flop on trade. It is an exceedingly common tactic among politicians.

In this election cycle alone, we’ve see Hillary Clinton oppose the Trans-Pacific Partnership, which she once heralded as the “gold standard in trade agreements.” And Ted Cruz did a full 180 in opposing trade promotion authority last year after he eloquently praised the bill in the Wall Street Journal.

One of the most impressive trade flip-floppers in recent memory was Mitt Romney in the 2012 presidential campaign. Prior to running for office, Romney properly criticized protectionist tariffs the Obama administration imposed on Chinese tires as an economically harmful sop to labor unions. 

But then the Obama campaign started accusing Romney of being the “outsourcer-in-chief” for helping companies invest abroad during his time at Bain Capital. In response, Romney struck a very confrontational tone against China, accusing them of cheating while criticizing Obama for being too soft on Chinese trade.

Four years later, Romney is back to talking sense about trade. In his recent speech warning Republicans about Trump, Romney directly addressed Trump’s signature trade policy proposal:

[Trump’s] proposed 35% tariff-like penalties would instigate a trade war that would raise prices for consumers, kill export jobs, and lead entrepreneurs and businesses to flee America.

Peter Suderman at Reason points to Romney’s duplicity in a scathing indictment of the GOP establishment he claims have enabled Trump’s candidacy:

Romney, like many Republican elites, has now changed his tune, and he deserves credit for speaking unequivocally about Trump’s many serious flaws. But Romney and others in the party played Trump’s game, and talked Trump’s language, for long enough that they helped legitimize it, and allowed it, even encouraged it, to fester and grow.

Republicans’ election-year flirtations with anti-trade populism are especially frustrating, because populist rhetoric doesn’t always have to be anti-market. You can and should make the case for free trade by railing against the evils of protectionism. 

Every artificial trade barriers is an example of crony rent-seeking. You don’t have to extol the economic virtues of free trade in order to condemn corporate welfare. Republicans did a good job of this in their (temporarily successful) fight against the Export–Import Bank. 

Some of Donald Trump’s primary opponents recently took a similar tack when they criticized Trump’s tariff proposal as harmful to consumers. Tariffs are taxes that raise prices. This is bad for consumers, especially poor consumers, and bad for U.S. businesses that need low-priced imports to remain competitive in a global market. By making it more expensive to do business in America, tariffs directly drive away investment and jobs. 

Protectionism benefits big businesses with lobbyists while killing American jobs. That’s the populist case for free trade. It may be easier to blame foreign competition and outsourcing for perceived economic ills, but it’s not accurate and it won’t lead to good policies that help the American public.

In the end, elected Republicans shouldn’t be surprised that Trump’s belligerent economic nationalism resonates with voters. They’ve consistently failed or refused to articulate the broadly compelling case for good economic policy they desperately need at the moment.

Yesterday, a dispute settlement panel at the World Trade Organization released an official report finding that local content requirements in India’s solar power scheme violate global trade rules. The ruling condemns a particular protectionist policy that dilutes the effectiveness of solar subsidies by diverting them to inefficient domestic manufacturers. The case is one more example of how global trade rules help to prevent green energy initiatives from becoming expensive crony boondoggles.

Although the report was just released, we’ve known what the outcome would be since last September. At the time, I wrote about how India’s local content requirement harms its own green energy initiative:

The ruling ought to be celebrated by advocates of solar power. The local content requirement acts as a drag on the program by making solar power plants more expensive to build. Allowing solar energy producers to purchase panels on the global market not only reduces prices for those producers, it also furthers the development of efficient supply chains for solar panel production.

Predictably, however, some green groups are not happy with the decision. According to the Sierra Club, “the WTO has officially asserted that antiquated trade rules trump climate imperatives.” They’re fully committed to the idea that—contrary to the lessons of history and economics—full-fledged green industrial policy will lead to a future of “100 percent clean energy.” They believe filling the economy with “green jobs” is politically and economically necessary to achieve their environmental goals.

But this policy approach is self-defeating, and I’ve pointed out its shortcomings on this blog before:

The inconvenient truth is that green industrial policy isn’t going to lead to a future of renewable energy, but it does benefit cronies and politicians. Bureaucrats who don’t make decisions based on market realities still respond to incentives, making them susceptible to capture by special interests at public expense (see Solyndra). Even if bureaucrats are enlightened saints, the centralization of decision-making benefits large firms at the expense of entrepreneurs and other innovative competitors. Over time, the relationship between commercial success and political acumen leads businesses to invest more in lobbying and leads to a culture of rent-seeking and privilege. 

But the Sierra Club does rightly note that the U.S. government is being somewhat hypocritical in going after India’s solar subsidies at the WTO.

Bringing this case is a perverse move for the United States. Nearly half of U.S. states have renewable energy programs that, like India’s solar program, include “buy-local” rules that create local, green jobs.

And the United States doesn’t just include protectionist local content requirements in its subsidies. Like India and Europe, the U.S. government also imposes import tariffs in the form of antidumping and anti-subsidy duties on solar panels and wind turbines. Simon Lester and I have argued that these sorts of tariffs should also be prohibited.

Taxing the same products you subsidize is inherently counterproductive. The same is true when you condition subsidies on the use of domestic products. Unless, of course, you are a domestic manufacturer that gets all the money and faces no competition. 

The “Bootleggers and Baptists” dynamic of green energy cronyism is a powerful driver of public policy. International trade rules and dispute settlement can help to counteract that.

Watching the Presidential primary debates, there are numerous instances where I — and no doubt many others here at Cato and elsewhere — think, “I should really correct that inaccuracy in a blog post tomorrow.” But sometimes you wake up and find someone else has already done the job for you. Here are Washington Post fact checkers Glenn Kessler and Michelle Ye Hee Lee skillfully taking down one of Donald Trump’s ridiculous statements on trade:

“I don’t mind trade wars when we’re losing $58 billion a year [to Mexico], you want to know the truth. We’re losing so much. We’re losing so much with Mexico and China — with China, we’re losing $500 billion a year.” –Trump

Trump has the numbers right on the trade deficit with Mexico and overstates them with China — but he gets the economics very wrong in both cases. A trade deficit means that people in one country are buying more goods from another country than people in the second country are buying from the first country.

So in Mexico’s case, Americans in 2015 purchased $294 billion in goods from Mexico, while Mexico purchased $236 billion in goods from the United States. That results in a trade deficit of $58 billion. In the case of China, Americans in 2015 bought $482 billion in goods from China, while Chinese purchased $116 billion from the U.S., for a trade deficit of $366 billion.

But that money is not “lost.” Americans wanted to buy those products. If Trump sparked a trade war and tariffs were increased on those Chinese goods, then it would raise the cost of those goods to Americans. Perhaps that would reduce the purchases of those goods, and thus reduce the trade deficit — but that would not mean the United States would “gain” money that had been lost.

Trump frequently suggests, as he did in the debate, that Mexico could pay for the wall out of the $58 billion trade deficit. But that is nonsensical. The trade deficit does not go to the government; it just indicates that Americans are buying more goods from Mexico than the other way around.

Two recent economic studies purporting to estimate the impact of the Trans-Pacific Partnership (TPP) agreement on the U.S. economy have sparked a kerfuffle between the deal’s advocates and detractors. One study, published by the Peterson Institute for International Economics, estimates increases to U.S. income of 0.5 percent by 2030 with gains to labor accruing slightly more than gains to capital. The other, published by Tufts University’s Global Development and Environment Institute, estimates that the TPP would reduce U.S. income by 0.5 percent, reduce employment by almost half a million jobs, and increase income inequality. The findings of each study are being trumpeted as dispositive by their respective constituencies. Who’s right?

In a recent blog post, PIIE-affiliated economist Robert Lawrence wrote that to judge the credibility of these models, three questions should be asked: Is the model used appropriate for exploring trade policy? Does the model depict TPP sensibly? Are the results credible? Lawrence then goes on to explain why he answers “yes” to each question regarding the PIIE study and “no” to each regarding the Tufts study. Well sure, Bob, at a minimum, those criteria are important. And they help distinguish the PIIE model as relatively credible – that is, relative to the Tufts model. But what about relative to reality? 

A model might depict TPP sensibly, but incompletely and imprecisely. How can we be sure those imperfections don’t have a large impact on the results? And even if the results are credible, in that they don’t deviate dramatically from expectations, their purpose – or, at least, the weight assigned to these studies in the public’s mind – is to produce reasonable estimates, not to corroborate the model’s capacity to process reasonable expectations.

With apologies to my trade economist friends, anyone who treats the estimates produced by economic models as mathematical truths is, well, part of the problem. Lawrence doesn’t do that, but too many trade policy combatants do. Certainly, some models are more rigorous than others, but all rely on assumptions. The greater the number and complexity of exogenous policy changes being modeled, the greater the number of estimates and assumptions to incorporate, and the further removed from reality the results will be. Sometimes the estimates are merely best guesses and sometimes the assumptions have no better than a 50 percent probability of occurrence. For example, many of the economic benefits of TPP will derive from reductions in non-tariff barriers to trade, such as regulatory opaqueness. How does one model the increase in regulatory transparency? How does one account for stricter environmental or labor or intellectual property regulations? How does one assign numeric values to rules limiting restrictions on cross-border data flows?

The PIIE study assumes that 75 percent of non-tariff barriers constitute trade restrictions (with 25 percent being regulations intended to promote or protect social goods, such as food quality and safety, for example) and that about 75 percent of those NTBs affecting goods trade and 50 percent affecting services trade are actionable. So, the PIIE assumptions are that 56.25 percent and 37.50 percent of NTBs affecting good and services, respectively, will be reformed under the TPP, and the effect of each reform is modeled as a trade cost reduction of 0 to 100 percent for each combination of industry and country. One other assumption is that 20 percent of these reforms also will benefit non-TPP members, which – through a feedback loop – will magnify the benefits to TPP-country economies. So, modeling the TPP requires numerous assumptions and estimates from the outset.

With respect to the PIIE study, perhaps, we can accept that the sign of the coefficient on income is positive (“the TPP will produce benefits for the U.S. economy”), but the magnitude of 0.5 isn’t much better than a guess because it is the product of so many assumptions and estimates. And despite the model’s relative rigor in using microeconomic behavioral equations to transmit the effects of TPP, predicting how economic agents will react to a confluence of policy changes is a dicey proposition – a fatal conceit. Economics is not science. The preferences, information, and knowledge that drive economic decisions are all personal, nuanced, and dispersed. They cannot be represented mathematically with any precision. Assumptions about how economic agents should react that are, at best, based on probabilities and expectations of utility- or profit-maximization don’t always hold. To their credit, the Tufts economists, responding to Lawrence’s legitimate indictment of their approach, concede that economic models involve a lot of guesswork and that economic modelers have a long way to go.

What the public and policymakers should be considering – what should be under the spotlight – are the rules of the TPP, not the projected outcomes. The outcomes cannot be known with certainty. The rules are objective and concrete. We should be able to draw conclusions about the desirability of the TPP from its language – from the rules it articulates – without guarantees of particular outcomes. The TPP should be judged by the degree of economic freedom it restores, not by a shouting match over highly contestable estimates. Indeed, some chapters of the TPP are expressly about reducing trade barriers, including tariffs and other obstacles to competition. Those provisions should be universally embraced, as they will help restore our economic freedoms. (For those whose companies or industries are subsequently exposed to greater competition when barriers are removed, please realize that you have been benefitting at everyone else’s expense and that liberalization rights that wrong.)

Other chapters of the TPP are less about liberalization and more about crafting common rules about how governments treat foreign enterprises and how they enforce labor rights, environmental regulations, intellectual property provisions, and so on. It is less clear whether and how these “governance” chapters enhance or impair or economic freedom. But each chapter can be assessed exhaustively on a qualitative basis, without need of highly malleable estimates of economic outcomes.

In the weeks and month ahead, look for a comprehensive, chapter-by-chapter assessment of the TPP from my Cato Institute trade policy colleagues and me.

The potential negative impact of immigrants on American political and economic institutions is the best argument against liberalized immigration and the economic, social, national security, and criminal objections are not convincing. Michael Clemens and Lant Pritchett dig into this argument, which they call the “Epidemiological Case for efficient migration restrictions,” and find it mostly wanting (their paper is the best I’ve read in a long while). I’ve co-written an academic journal article, Cato policy paper, and other work about how immigration could affect institutions. There is more evidence that immigration improves institutions than that it worsens them although there is still much work to be done on this issue and questions remain.

But there is evidence that emigration improves a source country’s institutions. Fredrik Segerfeldt summarizes some of the evidence in his new book for the Adam Smith Institute in the UK. In Chapter 6 of his book, Segerfeldt observes:

Mexican migrants play an important role in shaping political attitudes in the country, both through social remittances and after returning home. Political participation increases, democratic competition intensifies, it becomes more difficult for leading members of the party in power to enrich themselves and the chance that the ruling coalition will retain power decreases. In short, Mexico’s exodus makes it more democratic.

Although much of the research above deals wit h Mexico, there are other results indicating that emigration can strengthen democracy. In a macro study of a large number of poor countries, economists find that emigration increases both democracy and economic freedom in the sending country.

How does emigration improve Mexican economic and political institutions? By breaking up cronyist and interventionist political arrangements:

Emigration can also help to break up or at least weaken governance based on patronage. In such countries voters tend to vote for the ruling party, because otherwise they risk losing the benefits that the power distributes. Entire communities will be dependent on the ruling party, which impairs democracy. But when people in a community receive income that is not from the state or the ruling party, citizens become more independent and can therefore vote for the opposition if they want to. In Mexico, remittances reduce the support for the PRI, the party which, with the help of patron-client methods, managed to retain control of the country during most of the 20th century (between 1929 and 2000).

Migration and remittances may also be a way to break up old hierarchies based on class and ethnicity. In San Pedro Pinula in Guatemala, for example, residents of the Mayan people, with the help of both returning migrants and remittances, have slowly but surely been able to challenge the ethnic underclass role they had for five centuries. In the oases of southern Morocco, the Haratin, poor black, landless workers, have enhanced their status thanks to remittances from abroad.

Segerfeldt’s summary of that research can help explain the important finding by Joshua C. Hall that the ability to emigrate is correlated with improvements in source country economic freedom: 

Exitability, a variable created by Brown (2014) to capture how easy it is for citizens to “vote with their feet” is related to the change in economic freedom from 1980 to 2010 in a statistically significant manner across all specifications. This provides some indirect evidence to the importance of “exit” versus “voice” with respect to the question of institutional reform.

Emigration benefits governance in sending countries, increasing the returns from liberalized immigration policies in the developed world. This is an exciting time to be working on how immigrants affect economic and political institutions.