As prices at the gas pump and on our store shelves rise, President Biden recently mentioned that he would consider raising some tariffs on China in an attempt to combat sky-high inflation. It’s a question he has addressed before, noting that inflation is his “first economic priority”. And even if the elimination of customs duties is only the beginning, there is still a lot to be done to encourage international trade, the real solution to combat rising costs. Simply put, all barriers to global free trade limit competition and allow domestic producers to raise prices, a factor that contributes to inflation. But somewhere along the way, elected leaders forgot this basic economic concept and turned to policies that limited an international market.
A global pandemic and the resulting runaway deficit spending have contributed to a historic level of inflation. Today, Republicans and Democrats question America’s participation in international trade and suggest that weaning ourselves off a global free market is the right answer. In doing so, they ignore a fundamental economic truth: voluntary trade creates wealth.
Look no further than the president’s State of the Union address: “Instead of relying on foreign supply chains, let’s do it in America,” Biden said, receiving applause from both sides of the the driveway. And Democrats have recently beefed up their support for that effort, including Sen. Tammy Baldwin (D-Wis.), who introduced the Supply Chain Resilience Act. She noted, “Our ‘made in America’ economy has been neglected, exposing us to shocks that prevent us from producing or acquiring the things we need, putting our health, economy and security at risk.”
However, Democrats are not alone in wanting to restrict international trade. Others, like Sen. Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, said the need to domestically produce critical items such as computer parts and semiconductor chips ” already firmly existed, but the Russian invasion [of Ukraine] just put an exclamation mark on it” — making it clear that both sides have seen a sharp shift on this issue over the past few years.
What hasn’t changed, however, are the fundamental truths by which economies operate. And the benefits of free trade are not limited to access to better quality products at lower prices – a point underscored by the recent shortage of infant formula, caused in part by a limited number of domestic infant formula under strict government policies designed to prevent foreign producers. Studies show that globalization actually boosts the US economy by shrinking inefficient domestic industries and providing resources and opportunities for innovation, thereby raising wages and improving living standards. In fact, the Bureau of Economic Analysis notes that at least half of US imports are inputs for US manufacturers, not consumer goods. These imports reduce the costs of imported inputs, ultimately lowering a manufacturer’s production costs and facilitating economic growth.
These are not only important lessons for our country’s elected representatives; they are a vital message for all Americans. Basic economic literacy – including the role global trade plays in building a thriving economy – touches every aspect of our lives, from the clothes we wear and the food we eat to the cars we drive. At the Foundation for Economic Education, we understand the value of teaching young people and educators to think about economics. Our teacher training program on “International Business Issues” strives to do this through in-person and online programs for high school teachers, who then impart these essential economic concepts to their students. More than 3,600 teachers have completed this program, which teaches fundamental ideas such as supply and demand, comparative advantage, balance of trade and opportunity cost. More importantly, these teachers have introduced more than half a million high school students to the benefits of commerce, including a growing number of them during the pandemic.
I hope that by creating more informed citizens and growing economic literacy across the country, American citizens will demand that our politicians follow sound economic reasoning, instead of protectionist trade policies. By developing international trade, we will in turn develop a stronger and healthier society economically – a society that includes a new generation of leaders who understand the benefits of a truly open market economy.
Ted Tucker is the executive director of theFoundation for the teaching of economics, a non-profit educational organization that promotes experiential learning and economic thinking. FTE was established in 1975 and operates as a program ofThe American Studies Fund.