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Donald Trump, via Wiki­media Commons

Within the current climate of trade talks, there are many common mis­con­cep­tions that arise to justify pro­tec­tionist policies. It has long been accepted that NAFTA — the North American Free Trade Agreement — is the gold standard for free trade deals. And though it’s not perfect, Pres­ident Trump should not dis­mantle it.

Trump and his base rely on several catchy talking points when arguing for pro­tec­tionism. And without an under­standing of eco­nomics, they might seem rea­sonable. At his rallies, Trump often repeats sta­tistics about the U.S.’s trade deficit and uses rhetoric that leads voters to believe trade can be harmful to our country. He also reg­u­larly refers to the U.S.’s indus­trial base as a hol­lowed out artifact. This is why the U.S. is better off without NAFTA, according to Trump. He said he’s dis­man­tling it in pursuit of a “better deal” — one that just so happens to attack indi­vidual liberty and undermine the economy. 

The trade deficit is often the first talking point pro­tec­tionists refer to when arguing for tariffs, or other bar­riers to trade. Running a deficit is not a bad thing. As an example: Just about every Hillsdale student has a trade deficit with the college. Each student imports one four year edu­cation from the college. Assuming the stu­dents don’t work for the college, the stu­dents export nothing to the college. This means that by the end of each school year, stu­dents who pay full tuition are left with a trade deficit of $38,578 with the college. Stu­dents often fund this by taking on per­sonal debt. Despite this, stu­dents decide that the investment in the edu­cation we receive is more ben­e­ficial than the debt we take on to fund it. We do this because we hope to work for a company that we can export our labor to in the future. 

Sim­i­larly, American indi­viduals make the decision to spend money abroad on imports. The dif­ference is the money spent abroad must return to the United States. This is the case because people only accept dollars because they expect to be able to spend them in the U.S. For­eigners spend these dollars on one of two things. U.S. exports, or U.S. invest­ments. The exports are sub­tracted from the deficit, the invest­ments are not. This means every dollar in the deficit is a foreign dollar invested in our capital. By having a deficit more people are investing in the U.S. than the U.S. is investing abroad. This is ben­e­ficial to the United States. People abroad are putting more money into U.S. capital because we are a safe investment. This shows sta­bility in our economy, rather than under­mining it. 

Trump would also have voters believe trade is ben­e­ficial to one side and harmful to the other. This isn’t true. Since Adam Smith’s “Wealth of Nations,” the eco­nomic com­munity has accepted that spe­cial­ization and trade create wealth for the trading parties. The founders under­stood this, ensuring that the states could freely trade with each other without tariffs.  The founders did, however, create national laws that were pro­tec­tionist in nature.  This is one of the biggest logical incon­sis­tencies of the founding. Since each state has its own economy, some states will run a deficit with others. Using pro­tec­tionists’ logic, states should place tariffs on the other states they run a deficit with to build up their domestic industry. But this would never work. Instead, states take their com­par­ative advantage and spe­cialize in indus­tries that cost them the least and then trade for goods other states have an advantage in. In doing this, everyone becomes wealthier. America is better off when its cit­izens are free to trade with others without gov­ernment inter­ference. This is true whether or not the people we trade with are in our country or not.

Pro­tec­tionists also argue the U.S.’s indus­trial base is being com­pletely hol­lowed out and wages are decreasing. A quick look at the numbers show this to be false. According to data from the St. Louis Federal Reserve, the total indus­trial pro­duction index of the U.S. has increased by 58 percent and the American real median household income has increased by more than 14 percent since NAFTA was enacted. More numbers from the Cato Institute reveal that man­u­fac­turing within the U.S. increased to a record $2.24 trillion in 2017, reflecting a 1,936 percent increase in man­u­fac­turing pro­duction since 1953. Tech­no­logical improve­ments have con­tributed to this radical increase in the pro­duc­tivity of labor, to be sure, but foreign investment has helped that, allowing for more capital and tech­no­logical inno­vation.

Rene­go­ti­ating NAFTA to balance the trade deficit is not nec­es­sarily ben­e­ficial to the U.S. If Trump con­tinues his pro­tec­tionist policies, more harm than help could come to domestic pro­ducers and con­sumers. Free trade may only be a policy, but it is a policy built on indi­vidual freedom and self-interest. When properly directed, these two things lead to better out­comes for all Amer­icans and for the world. That is to say: I’m not buying what Donald Trump is selling.

Aaron Houtari is a senior studying eco­nomics and applied math­e­matics.