After a seven-year hiatus from the top 10, the United States once again ranks as one of the freest economies in the world. According to a new report published by the Canadian think tank the Fraser Institute, the U.S. is now the sixth-freest economy on Earth.
This improved ranking should encourage Americans, because the Economic Freedom of the World, or EFW, report consistently finds an intrinsic link between economic freedom and human well-being.
To rank the level of economic freedom for 162 economies, the EFW analyzes 42 indicators across five major areas — size of government, legal system, property rights, sound money, freedom to trade internationally, and regulation — using data from 2016, the most recent year available.
Historically, American economic freedom rose year-after-year from 1980 until the U.S. achieved its highest-ever score at the end of the Bill Clinton presidency in 2000. The U.S. ranking then began to decline under President George W. Bush and continued to fall throughout President Barack Obama’s first term. Areas where economic freedom declined the most include: controls on the movement of capital and people, protection of property rights, and impartial courts.
Since the low in 2013, America’s overall EFW score started to increase every year, and in 2016, the U.S. was higher in all five areas than it had been in 2013. Although the U.S. is far from the freest nation, the EFW’s new top 10 position is a step in the right direction.
The 2018 EFW report found that the economically freest nations have average incomes 7.1 times higher, life expectancies 15 years longer, and an extreme poverty rate 21 times lower than the least free nations.
While some might be quick to suggest this increase in economic freedom is due to Trump’s presidency, the 2018 EFW report uses data from 2016, and so none of President Trump’s policies were considered.
Admittedly some of Trump’s policies in the last 21 months will likely increase U.S. economic freedom, such as the president’s large tax cuts and the rollback of multiple regulations. Yet there is cause for concern, as many of Trump’s policies are beginning to make the American economy substantially less free.
Trump’s implementation and admiration of tariffs threaten to undermine the freedom of the American economy and the global consensus in favor of free-trade. America had a strong economic performance in 2017, but it would be naive to accredit this to Trump’s protectionist policies. Because Trump’s trade barriers did not kick in until January 2018, they have no effect on the EFW’s most recent report.
Since January, the U.S. has imposed steel and aluminum tariffs on all nations (besides Australia and Argentina) and introduced tariffs on $50 billion of Chinese imports. Just last month, President Trump placed an additional 10 percent tariff on another $200 billion of Chinese products. In 2019, the tariff will rise to 25 percent.
If America’s economic freedom deteriorates, this could lead to a fall in American citizens’ wellbeing — which is typical for a nation that adopts a more protectionist economic outlook. History is littered with examples of once-rich nations adopting protectionist policies and becoming poorer.
For example Argentina once had the highest per-capita GDP in the world. But following World War II and the adoption of Peronism (a form of Argentine economic nationalism that saw increasing state control of the economy), economic progress ceased. A similar tale can be told about Venezuela, which was the most prosperous nation in Latin America and the fourth richest country in the world, until it was hit by a wave of economic nationalism.
Many hope that Trump’s aggressive protectionist measures only serve as a threat to force other nations into lowering their own tariffs on American goods. However, this strategy is a gamble — and the well-being of ordinary Americans is at stake.
Nevertheless, the U.S. should be glad that after a tumultuous few years away from the top 10, it is back as one of the freest nations in the world. President Trump should take pride in his policies that have made the American economy freer — such as deregulation and corporate tax cuts — but his consistent flirtation with economic nationalism must end. Economic freedom has a long and deep connection with human well-being, and if America begins to drift away from its free economy, the consequences will hit ordinary Americans the hardest.
Alexander Hammond is a researcher at a D.C. think tank and a Young Voices contributor. He writes about economic freedom, human well-being, and globalization.
