In 1979, Governor Ronald Reagan was preparing for his third presidential campaign, having belatedly challenged Nixon in 1968 and directly challenged Ford in 1976. The reality then was that U.S. manufacturing was under pressure, struggling to adapt to a changing global economy. To make matters worse, high inflation and a recent bout of stagflation left an economy mired in disaster. At this point in his career, Reagan was a fervent advocate of free enterprise, limited government and free trade, the hallmarks that would later define his presidential legacy. He had read Friedman and Hayek and was a regular reader of Hazlitt and The Freeman. He clearly understood that protectionism would not bear fruit. 

However, he also understood that understanding the economic realities of trade and translating them into a compelling policy position are two very different tasks. The Reagan campaign tackled the trade issue head-on. In their report, "Reagan and Bush on the Issues." they outlined a way to address the challenges facing U.S. manufacturing through market reforms. This approach is worth revisiting in the wake of President Donald Trump's second term and his embrace of protectionism, particularly tariffs , as a means to revitalize U.S. industry. 

Reagan's free-market approach began with an acknowledgment of the successes that free trade had brought to the United States, something conspicuously absent from the current policy debate. The campaign insisted (see below) that "international trade has increased substantially over the past two decades, helping to raise the standard of living for all of our trading partners." Trade provided "many of the luxuries we now enjoy and many of the necessities we need." They acknowledged the importance of manufacturing for export, noting that "U.S. exports generate roughly one-sixth of our private sector jobs." They further emphasized that "one of our best ways to promote economic growth in the future is to continue to expand our trade with other nations." 

For all the prosperity that expanded trade had brought to the United States, the Reagan campaign demanded that "free trade must be fair." Like the current administration, they condemned other nations that imposed "barriers on our exports and unfairly subsidized their own industries." Similarly, the Reagan campaign insisted that they would "work to prevent such unfair trade practices." Unlike the current administration, however, they insisted that entrepreneurship, tax cuts and deregulation, not protectionism, was the answer. The campaign noted that "Governor Reagan believes it is far more beneficial to our own interests and those of the world to aggressively pursue a reduction in the trade barriers of foreign nations rather than erecting more barriers of our own." In short, Reagan recognized that tariffs (and other trade restrictions) would hurt U.S. consumers by raising prices and hurt U.S. manufacturers by raising costs and reducing innovation, making us less competitive on the global stage, not more. 

To accomplish this, the campaign presented a multifaceted plan. Reagan's initiatives included making changes to the current regulatory code and tax laws to increase the efficiency and competitiveness of U.S. industry. This involved deregulation and a reduction in the tax burden. The campaign promised that the Reagan administration would review all government regulation that negatively affected our international competitiveness, modifying necessary regulations to make them less costly and eliminating unnecessary and overly burdensome regulations altogether. In addition, the Reagan team envisioned increasing the competitiveness of U.S. industry by supporting the acceleration of our long-standing depreciation programs, which would greatly increase the capital available for modernization and retooling of our industry. In addition, the campaign emphasized Reagan's support for a stable dollar, considered an important factor in promoting trade with the United States. Finally, the campaign promised that Reagan would promote exports by imposing a review of all "domestically imposed barriers to U.S. trade, such as extra-national enforcement of regulations and delays in licensing, in order to maximize the ability of U.S. companies to sell abroad whenever possible."  

Taken together, these initiatives constitute a free-market agenda to make U.S. industry more competitive, adaptable and innovative. Unlike more popular protectionist policies, tariffs and varying degrees of industrial policy, they are also free of the potential for rent-seeking and corruption that often arises when governments attempt to manage and guide economies.  

Note the difference between Reagan's approach and President Donald Trump's current approach. Rather than risk starting a trade war by imposing reciprocal tariffs, Reagan encouraged domestic production by doing everything he could to make it easier for other countries to import our manufactured goods. Today we see the opposite: President Donald Trump seeks to make it harder for other countries to export to the United States in hopes that they will change their stance on anti-U.S. trade policies. This is not the first time tariffs have been used as a bargaining tool, and his record in this regard is spotty at best. 

Of course, we know that Reagan was able to negotiate multiple trade agreements and lay the groundwork for NAFTA. The reduction of trade barriers resulted in a massive expansion of international economic activity, which contributed to the reduction of global absolute poverty from 40% to 9% today. This is an incredible achievement.  

At the same time, U.S. manufacturing has been austere in terms of the number of people employed, falling from approximately 19.5 million in 1979 to approximately 12.8 million, according to the latest figures. However, the job losses were due almost exclusively to increases in productivity and technological change, not to increased or unfair foreign competition. In fact, according to Sam Gregg, "manufacturing's contribution to U.S. GDP actually increased between 1997 and 2016, while real manufacturing output grew 180 percent between 1972 and 2007." Alarmists will point to China's rise as the world's manufacturing superpower as evidence that U.S. manufacturing has declined. These fears are unfounded. 

First, China, as a country, faces the constant fear of economic collapse due to its unsustainable and heavily centralized economic system of party-state capitalism. Second, while it is true that China's manufacturing output is three times that of the United States, it is also true that its population is six times larger than ours and that its manufacturing sector accounts for a much larger proportion of its labor force. Frankly, the fact that a command-and-control economy with several times as many (and much cheaper) workers employed in manufacturing only produces three times as much demonstrates that we have nothing to worry about with "Chinese manufacturing" as an economic threat. The American worker remains the envy of the world precisely because of our incredible productivity. There is no indication that this is going to change any time soon. 

As President Trump attempts to manage and manipulate the U.S. economy to promote American manufacturing, it is important to review alternative approaches. This especially applies to approaches that made us freer, more prosperous and more respected globally.

David Hebert and Marcus M. Witcher, The Daily Economy