In an election year where almost nothing has gone as expected, one of the biggest surprises may be the critique of free trade that has arisen from the populist wings of both parties. Both Donald Trump and Bernie Sanders railed against the detrimental effects of globalization in their respective primaries, and both performed far above the expectations of the party leaders who largely support the globalist agenda of free trade and open borders. Even Hillary Clinton, who in the not-too-distant past pined for a “hemispheric common market,” has hopped aboard the trade skeptic bandwagon.
While I regard these challenges to free trade orthodoxy as a largely positive development, the rhetoric surrounding the issue has unfortunately not risen above the generally depressing tenor of this election cycle. Where Trump could make good points about the uneven distribution of the costs and benefits of free trade, he instead blames Clinton for her part in every bad trade deal of the past two decades and the resulting demise of America’s once-prosperous manufacturing sector.
This gives the misleading impression that Clinton and her free trade deals are responsible for the struggles of every community that has suffered from a loss in manufacturing jobs. While trade is undeniably an important factor in explaining the decline of the American economy’s manufacturing sector, the reality is far more complicated.
A good case study in the mixed costs and benefits of free trade is the Maine pulp and paper industry. For the first half of the 20th century, Maine led the nation in paper production. Today, there are only six mills with operating paper machines, and those that still make paper are doing so at a fraction of their former capacity. At first glance, this looks like the perfect example of an industry destroyed by international competition enabled by bad trade deals. But a closer look reveals a more complex picture than this “Trumpian” narrative might suggest.
On the one hand, international competition has certainly taken its toll on Maine paper mills. Earlier this year, a mill partially owned by the New York Times in Madison announced that it would be shutting down. This closure was at least somewhat due to competition coming from a mill in Nova Scotia that produces a similar paper and receives subsidies from the Canadian government. Despite the imposition of a 20 percent tariff on the mill’s exports, the depreciation of the Canadian dollar has kept the imported product cheaper than what the Madison mill could produce domestically.
But to blame the industry’s recent struggles on free trade would be to ignore other economic strains that have put pressure on Maine’s mills. One major factor is the decrease in demand for paper products prompted by the increase in the availability of e-books and digital news sources. This trend is evidently not going to reverse itself in the future, so mills that fail to adapt in some way to the shrinking market for paper products will lose out to competition from mills both foreign and domestic.
An example of a Maine mill that has effectively planned for the future is Woodland Pulp in Baileyville, which is in the process of commissioning two new paper machines. These machines will produce products such as toilet paper and paper towels, which are not quite as vulnerable to changes in demand prompted by technological improvements. And for Woodland Pulp, international markets have been a key to its survival, as the Hong Kong firm that owns it is responsible for investing millions of dollars in capital improvements at the mill.
On its surface, the Maine pulp and paper industry appears to be the perfect example of a once-prosperous American industry brought to its knees by the increased international competition brought on by free trade. But there are many factors that complicate this narrative. Technological advances and energy costs have been more decisive factors in the most recent mill closures, and while competition in international markets has certainly pushed some mills to the brink, others have stayed afloat only because of foreign investment.
The complexity of the issue unfortunately means that both sides of the debate are prone to oversimplification. The lesson we should take from the example of the Maine paper industry is that neither protectionism nor unrestricted free trade will solve the problems faced by U.S. manufacturers. The populist anger directed against free trade has its source in legitimate grievances, but real solutions require a more careful attention to the economic realities facing each industry that has been adversely affected by trade. Perhaps it is too much to ask for such attention to policy details from the candidates in this year’s election, but hope springs eternal.