How did trade become a dirty word?

America’s retreat from liberal trade, if it persists, will rank among the greatest unforced policy errors of modern times. The shift is not just potentially momentous but also, in many ways, deeply puzzling.

The U.S. stands as a global economic champion, and reaps the benefits this provides, because of its unsurpassed ability to constantly reconfigure itself through innovation and competition. Given that ability, the bigger the market, the greater the rewards. The U.S. flight from liberal trade disowns the very traits that have made the country rich.

How did this come about?

The standard explanation is wrong. It dwells on the supposedly slow growth of median incomes over recent decades owing to the supposedly devastating effects of the North American Free Trade Agreement, China’s accession to the World Trade Organization and the recession of 2008.

These failures, it’s argued, discredited the hitherto-prevailing neoliberal consensus. Voters had finally had enough and demanded change. Politicians left and right, partly out of conviction and partly in response to popular demand, turned against market forces in general and trade in particular.

Every component of this story is broken. Over the period in question, incomes, correctly measured, have risen roughly in line with productivity. The living standards of low-income households, middle-income households and upper-income households are all much higher than they were before the alleged stagnation set in. (In 2022, the median income of middle-income households was $106,092; in 1970, it was $66,417.) The effects of NAFTA and the “China Shock” on jobs were trivial by comparison with the constant churn of employment — jobs gained, jobs lost — due to technology and innovation.

The recession of 2008 was an enormous setback, to be sure. It was avoidable, and subsequent policy errors prolonged the ordeal. Policymakers failed. But it had nothing to do with trade, and the economy bounced back. Even at its lowest, in the second quarter of 2009, output was higher than it had been just a few years before; in the following year it surpassed its previous peak and then kept on rising.

By 2020, the proportion of Americans regarding trade as “an opportunity for economic growth” rather than “a threat to the economy” had grown to nearly 80% — the highest in decades. Last year, with the post-pandemic economy back at full employment, a survey of Americans’ top policy priorities ranked “dealing with global trade” 20th on a list of 20 items. A new CBS poll says voters mostly approve of the Trump administration’s early initiatives — but solid majorities oppose his threatened tariffs on imports from Canada, Mexico and Europe.

Voters haven’t forced anti-neoliberalism on their political leaders; their political leaders have forced it on them. The most zealous Democrats are reflexively suspicious of market forces and and their Republican counterparts are reflexively suspicious of foreigners, so the parties can readily align on the dangers of free trade. Political polarization has hardened both those positions, strengthening the anti-trade consensus.

And, as a secondary effect, the bitter partisan divide on cultural matters now seems to be pulling public opinion on trade into alignment. (If you want President Donald Trump to succeed, you have to follow his lead on trade, which he has prioritized; accordingly, since 2020, Republican voters’ support for free trade has fallen more than Democrats’ support for free trade.)

Centrist leadership on trade — of the kind once supplied by conservative Democrats, such as Bill Clinton, or liberal Republicans, such as John McCain — has vanished from U.S. politics. In 2016 Hillary Clinton decided to oppose the Trans-Pacific Partnership, reversing her previous support for multilateral trade liberalization — not because voters demanded it, but because Democratic party activists demanded it.

Republicans in Congress are enabling Trump to disrupt global commerce — not because voters want a halt to the cheap Chinese manufactures they love to buy, but because failing to bow before Trump’s stupidity on trade will get Republican lawmakers primaried into oblivion.

Sad to say, expert opinion has made a vital contribution to this debacle. The great majority of economists still think that liberal trade serves U.S. and global interests. Yet this wouldn’t be obvious to the casual observer. The prevailing expert view shifted from “free trade is good” to “it’s complicated.”

What would be the point of another proof that trade promotes growth and prosperity? That was so old. Challenging consensus thinking — in this case, the widely derided “Washington Consensus” on trade and market liberalism — is much more interesting. Unsettling settled ideas is what the best academics do.

Yet there’s collateral damage. The strong pro-market presumption against steering the economy with trade barriers, subsidies and all-encompassing industrial policy was a restraint on political populism. Richer and more nuanced analysis, as the revisionists would have it, undermined the presumption and inadvertently gave populist simplicities a boost. Expert dismay over the abandonment of TPP was conspicuously absent. So was expert skepticism over the Biden administration’s resort to enormously ambitious and expensive subsidies (in pursuit of mutually inconsistent goals). Sometimes, rules of thumb serve a useful purpose.

Experts and lawmakers are failing to confront Trump’s trade-warrior delusions, but the president will meet other kinds of resistance. Plausible threats of retaliation will boldface the costs of trade barriers. Doubtless this prospect was a factor in getting the White House to pause its threatened tariffs on imports from Mexico and Canada. When tariffs are deployed, prices will rise and consumers will notice. And Trump should be careful: If the past few years have taught us anything, it’s that people detest inflation.

Just as lowering trade barriers is disruptive because it destroys some jobs and creates others, raising new trade barriers is disruptive too. (In the first case, the economy gains in the aggregate; in the second, it loses. Both spur turnover in the labor market.) Businesses accustomed to protection don’t like free trade, but businesses accustomed to free trade — as U.S. producers are, for the most part — don’t like protection. It renders earlier investments pointless and upsets their logistics. They’ll push back.

Unfortunately, even if Trump’s Great Trade War is all a bluff, it will do serious damage. Investments will be postponed until the confusion subsides. The focus of policymakers will move away from where it’s most needed — namely, on policies to spread the gains from trade more fairly and mitigate the stresses on workers due to all kinds of pro-growth disruption. Above all, the partnerships that have sustained America’s remarkable economic and geopolitical success will be impaired, if not wrecked.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Clive Crook is a Bloomberg Opinion columnist and member of the editorial board covering economics. Previously, he was deputy editor of the Economist and chief Washington commentator for the Financial Times.