Donald Trump’s trade policy is correctly denied economically as a loss. According to the Tax Foundation, the average American could experience a $1,300 reduction in post-tax INOME this year if the proposed tariffs come into effect. GDP is expected to decline between 0.8% and 1% this year, and brewing in other countries will respond. Federal Reserve Chairman Jerome Powell warns that in the near future he may be facing twin evils of creeping inflation and rising unemployment. But the story of Trump being an impossible tariff on a country that he has previously committed to free trade is false.
My research institute, Bridwell Institute of Economic Freedom, spends my days trying to understand how economic freedom changes affect widespread social and economic trends. The World Economic Freedom Annual Report (EFW), two of my colleagues, Robert Lawson and Ryan Murphy, are two of several co-authors, contains a variety of indicators that help us capture the meaning of a country becoming economically free. Four areas (out of five) track several metrics related to freedom to trade internationally. In 1970, the first year we have dated, the United States ranked fourth in the world for trade freedom. It is currently ranked 53rd. The latest version of the index has 165 countries, so it is even in the country’s highest quartile for trade freedom.
It is important to note that our data is released at a delay of 2 years. Therefore, the latest economic freedom data is from 2022. If Trump’s trade agenda is at least successful, the relative rankings of global trade will get worse.
The freedom to trade components internationally in the EFW is decorated with ten variables along four subcomponents: (1) tariffs, (2) regulatory trade barriers, (3) black market exchange rates, (4) management of capital and people’s movements, both thriff and non-tariff barriers are higher than in the early 2000s, but have been relatively remarried since the early 20s. Still, it ranks 62nd in the Index’s tariff subcomponent and 31st in the Regulatory Trade Barrier Component. There are no surprising black market exchange rates that affect the index. If we’ve been experiencing much worse since 2000, it’s in the fourth subcomponent that reflects the control that controls capital and people’s movements.
It is important to note that “people movement” here does not rely on immigration, but that is another area where Trump’s current policies prove the problem. Instead, this refers to the freedom of foreigners visiting our country for Eisha’s business and pleasure purposes. It makes this process unnecessary and ranks 44th in this category.
It also significantly regulates the flow of capital in and out of our country. Ranked 66th in the Capital Controls category. For example, there is a lot of control over the ability of non-residents to invest in the United States. These types of capital management have many negative consequences, including distortions in resource allocation, limited access to foreign capital, blocking foreign investment, and increasing costs due to the administrative burden of enforcement restrictions.
EFW rankings are relative rankings, which can lead to worsening of trade Eisha Suicidals and other countries have improved. As Douglas Irwin said in a recent WSJ article, “The United States should not have stupid tariff politics just because it has stupid tariff politics in other countries.” We are in a world where other countries are now enacting stupid politics in response to Trump’s reduced trade agenda. Even if our relative rankings improve, our raw scores will definitely decline overseas.
On a basic level, President Trump doesn’t think a positive summation game is possible. In his view, the world is a zero-sum game. However, the average person worldwide is 4.4 times more abundant than in 1950, even if the population exploded simultaneously in 1950. This explosion of prosperity was facilitated by international alliances forged during this period. Certainly, countries like South Korea, Taiwan and Singapore are open themselves to comprehensive international trade. Currently, there is more than 30 times more abundant than in 1950. Trade is the ultimate positive sum game.
In the second and half of the century, Adam Smith explained that the path to prosperity is not merchandising, but creating opportunities for trucking, bartering and exchange. President Trump’s policies are currently cutting off the prosperity policy. In doing so, he creates conditions for a sudden decline in economic freedom.
Meg Tuszynski is the managing director of Bridwell Institute for Economic Independence at Cox’s Business School at Southern Methodist University. She is also an assistant research professor at Cox School.
