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Guest OP/ED: Extreme Anti-Trade Proposals by Trump and Other Candidates Would Hurt GDP and Jobs

April 26th, 2016, NEW YORK, NY (Updated from April 11th)-

Fervent anti-free trade rhetoric dominates the U.S. Presidential campaign on both the Republican and Democratic side, raising the risk of increased protectionism, according to  Kathy Bostjancic, Head of US Macro Investor Service, Oxford Economics.  “Using our global economic model, we estimate that imposing high trade tariffs on China and Mexico and likely retaliatory tariffs would lower both the level of real GDP by 1.6% and employment by 1.4 million by 2020, than we otherwise forecast.  Sharp increases in tariffs would push the inflation rate up to 3.5% by 2020.” In an updated research briefing, Bostjancic notes the following:

• Tapping into the electorate’s rising disenchantment with free trade, the top presidential candidates are voicing protectionist trade antidotes. These include extreme mercantilist measures in which the leading Republican candidate Donald Trump calls for levying 45% and 35% tariffs on China and Mexico, respectively, and Democrat Bernie Sanders advocates ripping up existing US free trade agreements. However, even the more moderate views include objection to the current Trans-pacific Trade Partnership (TPP) agreement that is up for Congressional approval.

• Top Democratic leading candidate Hillary Clinton previously supported free trade agreements, but now, feeling pressure from the rising anti-trade sentiment she has shifted her position. As Secretary of State in the Obama Administration she supported the TPP. Now, she opposes the current text, saying the final version does not contain adequate enough provisions to create jobs and protect wages or increase national security.  Her shift is even more notable given that Bill Clinton, when President, presided over the passage of NAFTA – the North American Free Trade Agreement.
• On the Republican side, Ted Cruz also appears to have shifted his position by reversing his endorsement on Trade Promotion Authority (TPA).  He also does not support TPP.  Only John Kasich continues to back free trade deals including the TPP. He pledges to aggressively pursue enforcement of current free trade agreements and to negotiate better terms in future agreements.

“While within a country there will be segments that are adversely affected by increased foreign competition, overall increased trade activity lifts countries’ prosperity as indicated by the Heckscher-Ohlin model,” says Bostjancic. ” Additionally, according to Ricardian theory, a key tenet of free trade, a country exports goods or services for which it has a comparative advantage relative to other countries. This specialization eventually lifts the aggregate prosperity of all countries engaged in free trade. The experience from the 19th and 20th centuries amply confirm this; and also clearly show how damaging protectionism is,” she said.

Bostjancic also highlights the following in the report:

• The benefits of free trade are widely dispersed, while the costs are highly concentrated. Further, recent empirical evidence shows that the negative impact on affected workers is greater than theory suggested.  These negative externalities of free trade fuel the populist backlash.

• However, the benefits of free trade still outweigh the costs; thus, increased trade protectionism would stifle U.S. economic growth.

• Moreover, imposing such tariffs would violate World Trade Organization rules and puts the US in breach of trade agreements we have entered into with other countries.
• Most importantly, the politicians – while tapping into the electorate’s increasingly negative view of free trade – are focusing on the past and making global trade the scapegoat. Instead leaders should focus on practical solutions to help those workers who have been adversely affected by foreign competition as well as technological advances.

To receive the comprehensive research briefing, please contact Kathy Bostjancic, Head of US Global Macro Service, Oxford Economics, at +1 646 503 3066; Mobile: +1 917 580 1909 or email:[email protected] .

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