A Rebound in Trade Requires Big Shift in Trade Policy

By SBE Council at 5 October, 2021, 7:55 pm

by Raymond J. Keating -

The latest monthly trade report from the U.S. Bureau of Economic Analysis points to both exports and imports continuing a struggle to recover.

Like the rest of the economy, trade was pummeled when the pandemic hit. Monthly exports plunged from February to May 2020. And the subsequent recovery has been slow and uneven.

As of August 2021, imports had moved beyond the immediate pre-pandemic level, even after accounting for inflation. However, while exports in August exceeded the nominal monthly level at the start of 2020, when inflation is considered, real exports were still not back to immediate pre-pandemic levels.

Unfortunately, there's more to our trade troubles.

The Trump administration was overtly protectionist, that is, raising governmental barriers to trade through tariffs, and the Biden administration has done nothing to shift trade policy back in a productive, pro-growth direction. (See a piece by NTU's Bryan Riley here.)

In fact, President Biden is embracing Trump's tariffs on Chinese goods, even though he criticized them in his run for the White House out on the campaign trail. As noted in another piece by NTU's Riley, several other Democrats (including Vice President Kamala Harris) were critical of tariffs - largely because they cost jobs and raise prices on consumers and small businesses.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

Trade has lagged since the Great Recession (late 2007 to mid-2009). That's not surprising given the shift in trade policies from mainly pro-free trade from President Reagan in the 1980s through the administration of President George W. Bush to trade indifference during the Obama years, and anti-free trade during the Trump and Biden (so far) administrations.

The shift in an anti-small business (after all, most businesses involved in exporting and importing are small firms), anti-growth direction in trade in recent years has hurt the U.S. economy. (See two recent SBE Council briefs here and here on trade in the U.S. economy and the small business role.)

Whether it be about strengthening the supply chain for U.S. businesses and consumers, or opening up new opportunities for U.S. entrepreneurs, companies and workers, free trade - reducing governmental barriers like tariffs and quotas - is the right policy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. For more information on the benefits of trade, see Ray Keating's book Free Trade Rocks! 10 Points on International Trade Everyone Should Know.

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