Protectionism in the United States: A Paradox Shared by Trump, Harris, and American Society
Welcome to the 16th edition of Newsletter Basque Macroeconomics 5.0 published by Web 2.0: Basque Economics Worldwide Leadership led by Joseba Madariaga Macroeconomics & Econometrics Professor PhD in Economics
In a political landscape where Donald Trump and Kamala Harris represent opposing views on almost every issue, there is one surprising area of agreement: economic protectionism. This apparent convergence of ideas between two such distinct political figures reflects a deeply rooted paradox in American society, which largely supports protectionist measures. Protectionism, a policy that seeks to impose barriers on international trade to protect the domestic economy, has gained ground in the American public debate in recent years, but its real effects and current relevance are questionable.
Both Trump and Harris seem to share the belief that protectionism is key to revitalizing the U.S. economy, protecting jobs, and strengthening national security. This belief has resonated with the electorate, which often perceives globalization as a threat to economic and social well-being. However, this stance overlooks the current macroeconomic context and the true causes of the United States' economic problems. Based on two recent analyses of U.S. trade policy, we will argue that protectionism is the wrong answer to a misdiagnosed problem.
The Illusion of Protectionism as a Solution
In contemporary American politics, criticism of international trade has become a central issue. Trump, with his "America First" rhetoric, won the presidency in 2016 by promising tariffs and renegotiations of trade deals that, in his view, had harmed American workers. Harris, although more moderate, has also expressed support for "strategic tariffs" aimed at protecting domestic jobs.
Their agreement on this issue is not surprising, as protectionism has gained bipartisan support in recent years. During his term, Trump implemented sweeping tariffs on imported goods not only from China but also from allied countries such as Mexico and Canada. Despite Joe Biden’s campaign promise to return to multilateralism and a more open trade policy, his administration has maintained most of Trump's tariffs, further expanding "Buy American" provisions that require federal agencies to purchase domestic products. This policy continuity underscores that protectionism is not solely a Trump phenomenon but reflects broader anxieties that permeate U.S. economic discourse.
Protectionist rhetoric, however, is based on a flawed premise: the idea that trade deficits and job losses in the manufacturing sector are directly caused by unfair competition from countries like China. According to a recent report by Maurice Obstfeld, U.S. trade deficits are not simply the result of external policies or globalization, but rather manifestations of internal macroeconomic imbalances, such as insufficient savings and excessive domestic investment. Obstfeld’s analysis suggests that blaming other countries for U.S. trade deficits is a distraction from addressing the real economic problems within the country.
The End of the China Shock and the New Trade Reality
On the other hand, a study by Niccolò W. Bonifai, Nita Rudra, Rodney Ludema, and J. Bradford Jensen shows that competition from Chinese imports, often referred to as the "China Shock," which significantly affected U.S. manufacturing jobs during the 1990s and 2000s, is no longer relevant. While it is true that the surge in Chinese imports resulted in the loss of approximately 1.5 million jobs in the U.S. between 1991 and 2011, the study reveals that, since then, Chinese competition has ceased to be a significant factor affecting employment in the manufacturing sector.
Nevertheless, Trump’s protectionist tariff policies, largely maintained by Biden, have been justified as a necessary response to curb the negative impact of imports. However, these policies are designed to confront a threat that no longer exists, and worse yet, they may be stifling job growth. According to the study, from 2011 to 2019, imports from emerging economies such as Brazil, India, Mexico, South Korea, and Vietnam have positively contributed to U.S. manufacturing employment, creating nearly 500,000 jobs in the same regions that had lost jobs to Chinese imports decades earlier.
This highlights a fundamental problem: the United States is fighting the wrong trade war. Current policies are designed for a period that has long passed and are not helping to expand the labor market. In fact, by increasing import costs, these policies could be suppressing employment in sectors where component imports are essential for production.
The Costs of Protectionism in the 21st Century Economy
Not only is protectionism outdated, but it may also be damaging the most promising industries in the U.S. economy. According to the study by Bonifai and his co-authors, the U.S. services sector, which includes industries like software engineering, research and development (R&D), and financial services, employs more than twice as many workers as the manufacturing sector and offers significantly higher wages. These industries, which are net exporters, are constrained by trade barriers in many countries. Rather than focusing on imposing tariffs on goods, policymakers should concentrate on reducing barriers to trade in services, which could create more jobs in high-demand, high-wage sectors.
Additionally, protectionism has negative implications for national security. While some proponents of tariffs argue that these policies are necessary to protect U.S. economic independence from China, tariffs are too blunt an instrument to address security concerns. According to the authors, imposing broad tariffs could provoke retaliation from other countries, further destabilizing international trade relations and increasing the risk of conflict. Instead of relying on indiscriminate tariffs, the U.S. should focus on strategies that minimize risks in supply chains critical to national security without incurring the economic costs associated with protectionism.
The Paradox of Protectionism in American Society
The growing popularity of protectionism in American politics reflects deep dissatisfaction with the effects of globalization. For many communities in the United States, globalization has become synonymous with job losses, declining wages, and deteriorating economic prospects. These effects were particularly pronounced in the industrial Midwest, where the "China Shock" and international competition led to factory closures and massive job losses in manufacturing. It is not surprising that many of these communities embraced Trump’s protectionist policies in 2016, as he promised to bring back jobs and revitalize traditional industries.
However, as Obstfeld’s analysis points out, the U.S.’s economic problems are not the result of foreign competition but of a series of internal political and macroeconomic decisions that have exacerbated inequalities. For example, the lack of investment in infrastructure, education, and workforce training has left many American workers without the skills needed to compete in a globalized economy. Likewise, fiscal policies that have favored economic elites have contributed to growing inequality, while the absence of effective industrial policies has weakened key sectors of the economy.
The paradox is that while protectionism offers temporary relief to these struggling communities, it does not address the underlying causes of their economic decline. Protectionism may temporarily reduce foreign competition, but it will not revive industries that have been outpaced by technological change or structural shifts in the global economy. Instead, the U.S. should focus on long-term strategies, such as improving education and workforce training, fostering technological innovation, and strengthening economic infrastructure.
A Path Forward: Investing in Skills and Global Openness
While protectionism has gained ground in political debate, its usefulness as an economic strategy is limited. Rather than imposing barriers to trade, the U.S. should focus on equipping its workforce with the skills necessary to succeed in an increasingly interconnected economy. This includes investing in educational programs that prepare workers for the industries of the future, such as technology, advanced services, and renewable energy.
A good example of this strategy is the CHIPS and Science Act, passed in 2022, which allocates $280 billion to boost research and manufacturing in the U.S. This law not only promotes job creation in high-tech sectors but also expands support for community colleges, vocational programs, and research institutions, providing workers with the tools they need to be competitive in the global economy.
Additionally, employers should adopt a broader perspective in their hiring processes, emphasizing skills over traditional academic credentials. According to Bonifai and his co-authors, 51% of American workers have acquired skills through alternative routes, such as training programs, military service, or community colleges. Fostering a work environment that values these skills will help create a more flexible workforce that is better prepared to face future challenges.
Conclusion: Lessons for Europe
Protectionism is a reactionary response to the economic challenges facing the U.S., but it is not a viable long-term solution. While it may offer temporary relief to certain industries and regions, it does not address the root causes of the country’s economic problems. To build a more resilient and competitive economy, the U.S. must move away from protectionism and adopt policies that promote innovation, education, and global openness.
Europe, for its part, should learn from these American experiences. The European Union has also faced protectionist pressures amid globalization and economic crises. However, instead of following the same path, Europe should focus on strengthening its internal market and integrating its industrial and technological policies while fostering international cooperation. Investing in the green and digital transitions could be key to maintaining competitiveness and sustainability in the long term, avoiding the protectionist traps that could isolate its economies from the benefits of global trade.