Why Hillary Clinton is Turning Against Free Trade

In a typical election cycle, Hillary Clinton’s shifting attitudes on foreign trade might have been bigger news. Despite her support for trade as an integral part of the Obama administration’s ‘pivot to Asia’, Clinton now opposes the Trans-Pacific Partnership (TPP), an agreement which would create the largest trade zone in the world, spanning Pacific Asia.

Unlike her rival Donald Trump, who has been anti-trade and pro-tariffs since day one, Clinton has generally supported trade agreements for years. In the White House as First Lady for the passing of NAFTA, she later promoted commercial diplomacy and trade as part of US strategic interests as Secretary of State. As a senator, she supported every trade deal she voted on (with the exception of CAFTA).

But in the last year, she has swung from calling the new TPP the ‘gold standard’ of trade deals to outright opposition of it. So why has Clinton turned against the TPP?

Clinton’s election team has learned that trade theory’s ‘average consumer’ is no longer equivalent to the median voter.

Our economic theories of international trade make sense because of the law of comparative advantage. If two countries can specialize in what they are best at, each country can produce more efficiently; as a result, total international output increases, and both countries gain. If we add up gains from trade for the average consumer (total economic gains divided by population), the average consumer is supposed to be better off. The World Bank agrees, and cites trade as one of the reasons that global poverty has nearly halved since 1990.

However, when it comes to policymaking, all bets are off during an election year. The median voter theorem predicts that a majority rule system will pick a candidate that represents the policies and outcome most preferred by the middlemost voter. Policies are no longer judged by specialists on what they can do for the economy as a whole, but rather by each individual for their own benefit. This shines a very different light on trade deals like the TPP.

The TPP encompasses countries that comprise forty percent of the world economic output, similar to 1990s trade deals like NAFTA in size. It is signed but not yet fully ratified, and involves 18,000 tariffs and a spate of measures for non-tariff barriers. Since many of the countries involved are amongst the world’s most open economies in terms of merchandise trade (thanks to earlier agreements like NAFTA), the TPP focuses instead on intellectual property rights and patents, and the harmonization of regulations across member states. Despite this regulatory context, it has become the focus of our debates surrounding free trade, and a sticking point for Bernie Sanders supporters who couldn’t see themselves with Clinton.

We know that free trade has distributive consequences. International trade benefits consumers through lower prices of imported goods. The catch is that this benefit differs amongst income groups because individuals have to allocate their income between essentials, like food and housing, and manufactured goods and services.

High-income consumers spend proportionately more on services and imported manufactured goods than low-income consumers, and as a result, benefit more from cheaper prices. As inequality increases, measures of economic welfare, which average the benefits of trade for all consumers, become less and less likely to represent the true net benefit to the median voter.

From a foreign policy standpoint, the TPP could allow the US to advance the goal of containing China in the Pacific, but economists are divided on the benefits. Proponents predict a 1.1% overall average increase in GDP in TPP member countries by 2030, but a more recent Tufts University model predicts net GDP losses in the US, employment losses to the tune of 448,000 jobs, and an exacerbation of a multi-decade trend in rising inequality.

Yes, the US has a distribution problem; wages have lost relative to profits, and real median wages have been stagnant since at least 1980, despite real GDP per capita rising 78%. Not all of the declining labour share of income in the US in the last thirty years is due to industries shifting in the face of international trade. The automation of non-routine low-skilled jobs, Moore’s law of technology expansion, and other factors play a role. But relative distribution of income factors into how an individual views trade, and this divide has played into the populist turn in American politics.

Joshua Meltzer, a trade expert with the Brookings Institution, said "There are people who are going to oppose these [trade agreements] no matter what," in a 2015 interview for USA News. But to the discontented, this sounds a little too much like a 2012 Mitt Romney quip that “there are 47 percent of the people who will vote for the president no matter what".

For the longest time, the political establishment has not understood how or why the median voter could be against such ingrained, accepted truisms like free trade. Clinton is now forced in her presidential run to reflect back what her campaign team feels voters want.

Globalization, which international trade is one of the most visible facets of, suffers in practice because we have had imperfect redistributive structures in place. It has suffered precisely because those that benefit from globalization are at a loss to understand the anger from those who do not. Leaders including Barack Obama say free trade is good for the world. Voters are not listening. They want the rules of the game to be good for them; and they no longer fully trust ‘benevolent governments’ to manipulate tax credits or make transfer payments to ensure a middle class income.

Clinton’s changing attitude on the Trans Pacific Partnership is symbolic of the slow but growing recognition that our pre-existing trade theories do not match up with current levels of inequality, and an ongoing struggle to balance foreign policy with domestic opinion. The protectionist turn against international trade will not be simply cyclical unless there is a concerted effort – more than simply campaigning lip-service – to establish trade alongside redistribution. Because just as trade increases the size of the pie but makes it less equal, so does redistribution decrease the size of the pie (though taxation inefficiencies), but make it more equal. We cannot have one without the other.

McKenzie Rainey

McKenzie is a UBC International Relations and Economics alumnus. She has a keen interest in international political economy, globalization theory, and anything published in the New Yorker.

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