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Free trade is just another word for nothing left to lose

May 7, 2016

trade to gdp

Comparative advantage is obviously true: you can get more output if production is undertaken by producers who use fewer resources per unit of output. Can also be explained as recommending that production should be undertaken by the lowest cost producers if maximising production is the aim. And as with every statement such as this in economics, it comes with the proviso “all other things being equal”.

One of the bits about free trade I like to tease others with is that every trade negotiation is about concessions to reduce one’s own trade protection so that we can have the opportunity to sell more of our stuff to them. But they will only do that if we give them greater access to sell their stuff in our markets. No one, but absolutely no one, begins from the proposition that since free trade is so great, we will cut our tariffs and trade protection to zero and then cream all of the great advantages it will thereafter bring.

Which brings me to this article from which the above graph was taken: If trade made the US rich, explain this graph. Here’s the most specific para but do read the lot:

If your argument is founded on logical fallacies and theories that do not match reality, perhaps the belief is wrong. It goes without saying that the situation is complex, but to some extent, that is irrelevant. The result is what matters, and for as far as reliable records go back, the result is wrong.

Obviously, many, many, many other things are not equal but that is, of course, the point. Economic theory is looking like just so much hot air even here. The adjustment process is not instantaneous but requires immense restructuring that can take a generation. You know that business about there being no such thing as a free lunch. Maybe we should start thinking that maybe there’s no such thing as free trade either. No adjustment comes without costs. And when you add them in, free trade may be less of the bargain we traditionally think it is.

The arguments for free trade never envisaged a monstrous welfare and bureaucratic class either, where their level of demand was unrelated to the provision of value adding goods and services. And that’s just where criticism of the traditional theory might start.

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