Primer on Trade

Economists are gnashing their teeth over much of the back-and-forth about global trade in the presidential campaign. Mostly, the candidates are dissing the potential trade deal between the U.S. and other Pacific-rim nations, known as the Trans-Pacific Partnership (TPP), and global trade in general.

The candidates either didn't take Economics 101 in college, or they are ignoring what they learned - that global trade is a plus for the economy, and thus for jobs and incomes. Kiboshing trade deals is for the most part bad economics.

To be sure, there are big differences in what the candidates think about trade. The most anti-trade is businessman Donald Trump, who earned a degree from Wharton's undergraduate program. Trump has gone so far as to argue that, as president, he would slap large tariffs on Chinese and Mexican imports if those countries don't play by the rules he thinks fair.

This would be a disaster, as he is prone to saying about most views other than his own. If China and Mexico responded in kind by imposing their own tariffs on U.S. goods and services, which seems likely, a global recession would ensue. This would cost lots of American jobs.

Yes, the U.S. should be tough if other countries are bending the rules of fair trade, but much more will be accomplished through negotiation than bombast. It is important not to forget that the 1930s Great Depression was brought on in part by such emotions and a resulting increase in trade tariffs and a collapse in global trade.

Sen. Bernie Sanders' views on trade aren't nearly as extreme, but it is fair to say he is no fan of the TPP, or any other trade deal signed since the North American Free Trade Agreement among the U.S., Canada, and Mexico in the early 1990s. Consistent with his view that the economy is rigged in favor of Wall Street and big business, he believes these trade deals have been written without U.S. workers in mind.

While that narrative is significantly overstated, it is true that the trade deals and resulting globalization of the U.S. economy have been hard on those who have toiled in the nation's factories. Many manufacturing jobs were lost over the last several decades as production shifted to lower-cost producers located in places such as China and Mexico.

It is also true that we aren't very effective at helping displaced workers get the education and skills they need for jobs as good as, or better than, they had. Too many who lost jobs due to trade have ended up in a worse financial place, exacerbating the growing gap between the haves and have-nots.

There is no doubt that policymakers should be sensitive to these issues when cutting trade deals, and should devote more resources to helping out those who lose jobs. We can take a lesson from countries that do provide such assistance, which enhances the benefits of trade and reduces opposition to it.

That said, it would be an error if policymakers stopped making trade deals such as the TPP. We have already lost most of the jobs that would be vulnerable to these deals. U.S. manufacturers are mettle-tested by global competition, and can compete head-on with anyone. They are also likely selling much of what they produce to customers overseas.

Moreover, U.S. companies are poised to benefit from a global economy that is much wealthier - in part as a result of increased trade with the U.S. - and able to afford the goods and services we are so adept at producing. And there is a long list of these, ranging from media and entertainment to financial and professional services. Global trade is on the verge of becoming a slam-dunk positive for jobs and the broader economy. Pulling back now would be sadly ironic.

The TPP ought to be a particularly sweet deal to some who oppose it, such as Trump, because China is not even part of it. This is an opportunity for the U.S. and other Pacific nations to become more closely bound economically, confounding China's effort to drive a wedge between us and those other nations. Sen. John Kasich gets this, and he has come out in support of the TPP. He paid attention in class, as he is the most pro-trade of the candidates.

This gets to the views of Sens. Hillary Clinton and Ted Cruz. They appear suspicious but open to trade deals and greater globalization. However, both are opposed to the TPP, at least as it now stands. Clinton worries about worker protections in the deal and wants more money to help those who might lose their jobs because of it. Cruz's objection are more obtuse, related to distrust over how congressional leaders and the president would nail down the details of the deal.

Fair enough. But, if either becomes president, let's hope they get a refresher on the merits of trade and globalization and, after making some adjustments, sign the TPP into law along with other future trade deals. Our economy will be much better for it.

Mark Zandi is chief economist of Moody's Analytics. help@economy.com