What Do We Really Know About The Tea Party's Position On Free Trade?

The Tea Partiers that have been elected to Congress were put there because they had a one plank party platform. They were fiscal conservatives. The Democrats increased the budget deficit exponentially from 2008-2010. That is saying something, since President Bush and the Congress from 2000-2006 were not exactly spendthrifts. The Tea Partiers should significantly reduce and remake government spending.

But, are they in favour of free trade? It’s worth a decent amount of speculation. The US is faced with a hard choice, inflate or grow. QE2 shows an inclination to inflate. Virtually every government when faced with that choice makes the easy one. Decrease the value of the native currency relative to other ones to make it easier to pay down debt.  Growth is the difficult choice for governments because it takes time, and it involves making hard choices about spending. Politicians love to spend. They never like to take programs away from constituents. 

The outrage of the tea party movement manifested itself after the stimulus package was passed in March of 2009.  Many marches and protests across the country occurred. The focus was on government spending.  Post election, the lens is still on government spending. But it also has shifted to the extension of current tax policy and repeal of Obamacare. 

Lower taxes will incentivise growth. Repeal and replacement of Obamacare with a free market program will cut the deficit. However, a really quick shot in the arm to growth is free trade.  Will the Tea Partiers succumb to the populist movement of protectionism? 

Left wing Democrats almost always come down on the side of protectionism. They make value judgments on fairness and try to institute impossible standards for free trade. What they really are doing is protecting union jobs at home. Over the short term, the strategy might work. Over the long term, it always fails. 

Free trade is not a zero sum game. When protectionist instincts are put into place, the indigenous consumers and industry always get hurt. Innovation takes a back seat to crony capitalism. The costs of goods and services rise. Combined with devaluation of indigenous currency, elimination of free trade acts as another invisible tax on the economy. 

In the heartland of America, the Tea Party made huge gains. Michigan and Ohio, Illinois. If you explore a district like Congressman-elect Bobby Schilling, you see a classic tea party turnover. Schilling beat left wing incumbent Phil Hare. Hare was a union man. He ignored the Constitution and was a big free spender.  Anti-trade, he favoured measures to protect local industries. His district has the John Deere equipment operation in it. John Deere benefits from free trade in agriculture and equipment. Ratification of any free trade agreements that increase agriculture trade will benefit Deere. That means the union workers at the Deere plant make more money. This rolls into their communities because they will spend that increased money at the corner store. It will be interesting to see if new reps like Schilling back free trade.

New representatives from Ohio and Michigan should be big backers of free trade as well. In the agreement that is currently being negotiated with South Korea, autos are on the table. Any increase in exports of US autos to South Korea benefits industry in those two states. Ancillary industries that make auto replacement parts benefit. It doesn’t matter if we get more Korean imports in return to compete with US industry. Free trade will make US companies more competitive and innovative. Free trade increases the amount of choice available to consumers and makes goods and services cheaper. Liberalized trade agreements increase jobs in both countries. More economic activity increases the amount of money that goes into the tax system. Personal wealth increases not only for companies, but the for the line workers that are employed there.  Hopefully the Tea Partiers get on board with free trade. A rising tide caused by free trade lifts all boats.

There are several free trade agreements that have been stalled by Democrats. South Korea is one.  Columbia is another. The US needs to aggressively seek out trading agreements with every country that it can in order to give a growth scenario a chance. This is a place where Obama should actively lead. 

In addition to the benefits realised by local companies and consumers, there are strategic reasons for trading. Free trade strengthens relationships between countries. It aids in cross cultural understanding.  New networks are built and new connections are made. For example, it would be an excellent idea for the US to ratify CAFTA with the Columbians to lessen the chance of influence from a tyrant nation like Venezuela. 

Free trading nations also don’t generally go to war with each other. Free trade brings peace since each nation has a tangible economic reason not to fight. The famous quote is, “the US has never engaged in a war with a nation that has a McDonald’s.” is actually true.  No Micky D’s in downtown Kabul until 2007.

In January the new Congress will be sworn in.  Let’s hope they come down on the right side of free trade. 

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.