Powered by 
Recent years have put “trade” and “openness” in the dock, with familiar arguments about gains drowned out by domestic political and national security concerns. Getting trade’s mojo back—and the many benefits it brings to the nation—should be a call to arms for economists. It’s time to explain the gains from openness and concrete policy, and to process steps that address both political and national security reservations.
What has trade ever done for us?
When I think of economics and trade policy, I’m usually drawn to a great scene in the 1979 Monty Python movie Life of Brian (and here I express my consternation that my students don’t have memories of Monty Python on speed dial!). Played by John Cleese, Reg asks a crowd from the revolutionary People’s Front of Judea: “What have the Romans ever done for us?” The cadres begin a list. Finally, Reg replies: “Apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the freshwater system, and public health . . . what have the Romans ever done for us?”
And so it is with trade and openness. Despite paeans from countless Econ 101 lectures and the evidence of America’s leadership of the postwar international economic order, US economic policy has turned skeptical toward gains from trade. Large, across-the-board tariffs and renegotiation of regional trade arrangements like the US-Mexico-Canada Agreement have joined geopolitical and geoeconomic objectives in moving away from free trade and openness.
At one level, this shift is surprising. Benefits of trade to the American economy are real and large; US consumers have borne the brunt of recent tariffs; and tariffs on intermediate goods have weakened, not strengthened, many areas of manufacturing competitiveness. And even with national security and strategic constraints, openness is still the reasonable place to start.
At the same time, political-economy considerations (buried later in the “gains from trade” lecture in Econ 101) make the shift much less surprising. In light of that shift, a different approach toward economic policy and trade can improve broad public support for trade, while acknowledging that “free” trade with no constraints is unlikely. And that approach will be relevant to the technological advances that loom large in the minds of policymakers and average Americans.
Economists’ support for open markets for commerce and capital reflects clear gains for consumers and workers collectively. For consumers, trade offers lower prices and greater variety of products. Global competition raises the productivity of domestic firms, along with wages and incomes. International capital flows benefit savers (through higher returns than available in a closed capital market) and borrowers (through greater supply of funds for financing productive projects or for consumption).
Where there are politically sensitive imbalances in trade—current account deficits, in particular—these are not well addressed by trade policy tools like tariffs and quotas. Instead, such imbalances reflect an excess of national investment over national saving, clearly suggesting the importance of policy tools to raise national saving and public saving in particular. Such tools—essentially reductions in federal spending and increases in federal taxes—are more politically difficult than nostrums about unfair trading practices, but they must be discussed. More limited, though also important, questions about economic adaptation to trade require a more nuanced discussion, as I describe below.
Economists’ support for the “postwar international order” is also easy to understand. The long-running project to safeguard and advance trade and international finance led by the United States since the end of the Second World War has reduced trade frictions and uncertainty (at least until recent years). Regional arrangements, most notably the European Union, also reflect this economic progress. Such effects have a broad pedigree in economics, from support for rules-based systems by neoliberals like Friedrich Hayek to advocacy by John Maynard Keynes of domestic-policy safety valves to advance commerce and prosperity.
Yes, but: US support for the international order begins with politics at home, easier in America’s economic dominance in the early decades after the Second World War than it is now.
Also, national security concerns further complicate support for trade and openness. Such concerns can relate to particular goods or technologies used in defense, supply chain bottlenecks, strategic industries (e.g., semiconductor chips), or even countries perceived as adversaries. These areas merit discussion. But rigorous identification of “national security” exceptions is needed to avoid old-fashioned protection donning a security cloak, as I outline below. Two steps will improve this identification: addressing domestic distributional concerns about trade directly, and adding economic input to trade-related national security discussions.
Balancing gains and domestic concerns
So, why the calls of “What have the Romans ever done for us?” Many answers come to mind, but two broadly stand out. The first is the importance of political economy as well as economics in setting trade policy. Second, relatedly (though not as often discussed), is the distinction between economists’ emphasis on steady-state gains from particular policies or policy regimes versus the popular emphasis on transition gains, losses, and adjustment paths in response to policies or policy regimes.
Political-economy concerns in the United States, manifesting in heartland economic dislocations and the much-discussed “China shock,” have loomed large in a march from Pat Buchanan’s “America First” in 1992 to Donald Trump’s “Make America Great Again” in 2016. Yet, policy responses were weak during globalization’s gains over the past three decades. After all, wasn’t technological advance the bigger source of dislocation? (It was—and is.) And, since trade and openness left us collectively better off, can’t the “gainers” compensate the “losers” per Nicholas Kaldor’s oft-repeated advice from Econ 101? (Yes, but while transfer payments to low-income households increased, attention to full economic participation did not.) It’s odd that policymakers seemed surprised, given the importance of economic dislocation to politics in American economic history (as, for example, in the transition from an agricultural to a manufacturing economy).
The second factor shaping popular concern over economic policy toward openness is economists’ focus on the steady-state benefits of openness. While a comparison of steady states does reveal potential collective gains (or losses) from a reform, it stands alongside a politically salient transition (impacts on individuals and places).
Policy for a transition to greater openness has two elements. The first is preparation: skill development, training, and matches to emerging work opportunities. Current US policy is relatively weak in this regard, as typified in Trade Adjustment Assistance, modest support tracing back to the Trade Expansion Act of 1962. While the Kennedy administration acknowledged the need for such assistance to bolster popular support for trade expansion, implementation has not been generally successful.
A natural vehicle for preparation support is community colleges, which are on the front lines of both occupational-skill development and retraining. Community colleges are also good partners with local employers, coordinating educational programs with skill needs in the market. Federal support via a block grant to community colleges, accompanied by accountability standards, can bolster the supply of occupational-skill development by currently underfunded community colleges. They play a large role in ensuring workers have skills throughout their careers—including in preparing and connecting workers to new careers through short-term (less than two years) vocational training programs. This funding can help institutions continue to update curricula. As multi-employer groups develop standardized curricula that a community college can use to train students, the funds will provide resources to scale such programs.
Perhaps most important, funding will allow community colleges to expand wraparound services, such as career counseling, which is often expensive but critical to program completion. Such broad support for preparation has antecedents in American policy—for example, land-grant colleges started in the nineteenth century and the GI Bill after the Second World War. And, like those initiatives, a focus on community colleges can embrace differences across places in labor-market need.
Although preparation is an important avenue for policy, is does not by itself address losses to individuals and places buffeted by economic disruption, and this is important for bolstering public support for openness and change. Such challenges can be met by reconnection via social insurance. Many US labor-market social insurance programs relate to temporary job loss, as in cyclical changes emphasized in unemployment insurance, and not to adjustment to long-run, structural shifts. Two policies that would reframe social insurance are personal re-employment accounts and wage-loss insurance.
For younger workers likely to see higher returns from retraining, social insurance could both expand temporary income support and assist in gaining new skills. Personal re-employment accounts (PRAs) offer support to individuals experiencing structural unemployment, combining individual accounts to fund training and re-employment bonuses to encourage job search.
Such accounts can be a set amount or can be linked to an unemployment insurance account. Individuals could, for example, get access to funds calculated at some multiple of their weekly benefit allowance and choose to spend them on eligible expenses—including training, career counseling, transportation, or child care. They would then receive a payment upon re-employment within a certain amount of time of filing for benefits and lasting a minimum period (say, six months of employment). For example, a laid-off midcareer industrial worker could use a PRA for training through community college or other credentialed provider to obtain a new certificate.
Recent evidence finds that re-employment bonuses, structured as a fixed multiple of the weekly benefit, are a cost-effective lever to reduce joblessness and raise labor-force participation. Importantly, this structure, compared to one where the recipient receives all or a portion of the balance of the PRA as a bonus, avoids a tradeoff where PRA recipients reduce purchasing training services in hopes of receiving a higher bonus.
For older workers, wage-loss insurance would provide income support for income lost to structural changes. As with Trade Adjustment Assistance, this program would replace a portion of wages for a period. But such a program should reach beyond trade-affected workers. Older workers generally experience labor-market scarring from other forms of disruption, including technological changes, and they recover less quickly than younger workers—in part because the returns to worker training programs are smaller for older workers.
While these changes in social insurance can improve public support for trade and openness, they are also useful tools for structural changes more broadly, as with technological advances in general and artificial intelligence in particular.
Bolstering support for trade openness in a transition may also require some interim support for places as well as people. For example, areas with high levels of structural unemployment could be targeted for support for local training programs and the infrastructure of providing business services, as many economists have suggested. Given the recognized frictions involved in moving people to areas of new economic opportunities, policymakers should direct support to communities. Such support can be provided, for example, by scaling assistance to community colleges to specific measures of local economic distress. Support would increase as the unemployment rate increases or the employment-to-population ratio falls.
Having referred to the need to consider both “steady state” and “transition” in bolstering popular support for trade, I want to offer two suggestions about economists’ language.
First, we should embrace the political economy of the distribution of gains and losses from trade, ensuring that policy notices and acts upon these distribution concerns. Such language is different from my own policy experience, in which attention to, say, Trade Adjustment Assistance occurred only when the real goal was “Fast Track” Trade Promotion Authority.
Second, while attention to a “transition” is important, terms like “transition costs” should be banned. No individual worker or consumer, no firm or industry, and no place is a transition cost. Such casualty language pushes away popular support for substantial overall gains from openness.
These cautions are also useful for discussing the effects of technological advances, front and center in today’s fear of artificial intelligence.
Balancing national security and gains
Treasury Secretary Scott Bessent recently observed that US trade policy should embrace Alexander Hamilton, not Milton Friedman. At one level, such a quip is odd, as recent US trade interventions look little like Hamilton’s “infant industry” arguments for protection, and tariff revenue, essential for the early republic’s public finances, is no longer a major revenue source. On another level, though, the neoliberal push for free trade—by Friedman, in Bessert’s telling—is hard to reconcile with geopolitical challenges faced by America today.
The COVID pandemic revealed supply chain weaknesses that limit firms’ willingness to rely on global networks with little or no refunding. On a national level, collective decisions to cede rare-earths processing to China has exposed the United States to the risk of export restrictions. And, in the other direction, US public policy may seek to limit exports of certain defense-related technologies to China, or even use geoeconomic sanctions to limit non-US firms’ ability to do so.
These interventions illustrate reasonable exceptions to a philosophy of free trade and openness. But current US policymaking is much too loose about placing limitations.
What’s “defense” as opposed to “nondefense” technology? (The current US Defense Advisory Board could, for example, assemble technologists, industrial leaders, and economists to analyze boundaries and trade-offs.) Which global supply chain deficiencies should be left to firms to ascertain, and which pose externalities that raise concern for public policy? (A joint National Security Council–National Economic Council working group would offer a path forward.) Are there costs to the US economy of using geoeconomic tools like sanctions and export controls? (The NSC-NEC working group would identify challenges for US industrial competitiveness and the dollar’s dominance in global payments as use of geoeconomic tools increases.)
These questions require more than a nod to Alexander Hamilton over Milton Friedman or “national security” tariffs on Canadian and European Union products. Yes, security restrictions are a legitimate consideration—and have been an exception to openness even for classical economists like Adam Smith. Geoeconomic restrictions—sanctions or export controls, for example—will also be long-run tools of statecraft. But such tools entail trade-offs, so they should be explored in a broader context of economic as well as national security policy.
And such policy considerations should take care that national security and geoeconomic considerations are not simply a veneer over protectionism.
Back to basics
As I observed, addressing domestic concerns about gains and losses from trade is important for avoiding national security excuses for limiting openness. But more than policy development is needed to get broad support for trade and openness back on track. Policy process changes will also be needed in at least three areas.
First, how will national security and geoeconomic objectives be articulated and linked to trade policy?
Second, how will policies toward trade, labor markets, and community and economic development be coordinated?
Third, how can this process be applied to other areas of structural economic change?
Policy coordination should be among key agencies, including the Departments of Treasury, State, Defense, Commerce, and Labor, along with the Council of Economic Advisers, the US Trade Representative, and the National Security Council. Precedents for such coordination include the President’s Working Group on Financial Markets and the Financial Stability Oversight Council. The coordination council would report regularly to the president and Congress. The key is to identify and examine economic trade-offs in analyzing national security arguments for limiting trade. While economists are not necessarily national security experts, their contributions about trade-offs will be important, just as economic input would have raised caution about health experts’ recommendation of COVID-era lockdowns.
This approach also offers a roadmap for policy coordination in other areas of economic advances and accompanying disruption, with generative artificial intelligence an obvious candidate.
Classical economists were right in their embrace of openness, and economic support of trade and openness is still the right place to start. The nation has benefited from and continues to benefit from trade, just as Econ 101 professors remind students. But Econ 101 professors also speak of distributional consequences—“gainers” and “losers.” To restore political support for trade, with necessary caveats for today’s geopolitical and geoeconomic tensions, a better policy approach with political economy as well as economic considerations should start now.
Glenn Hubbard is the Russell L. Carson Professor of Economics and Finance in the Graduate School of Business and Department of Economics at Columbia University. From 2001 to 2003, he served as Chairman of the US Council of Economic Advisers.