Friday, January 09, 2004

If you are "For Free Trade, but" you probably aren't for free trade
Thank goodness I am not the only one who is getting worried at the rising protectionist rhetoric. Look at Kinsley's piece in Slate undressing some of the more ludicrious "free trade, but" arguments that we are seeing today.

Key Quote
The core of free-trade theory is the concept of "comparative advantage." Schumer and Roberts make the classic college-student mistake of confusing comparative advantage with absolute advantage. Nations trade because for each one there are goods or services it is more efficient to buy from abroad than to produce at home. If there is nothing America can offer the world that is either uniquely desirable or cheaper than elsewhere, the world will not buy anything from America. And after a while the world won't sell anything to America either, because we won't have the foreign currency to pay for it. So, even in this extreme case there is no need to restrict trade because trade will restrict itself. But in fact, as Ricardo demonstrated, there will always be something worth trading. Even if Nation A can produce both apples and oranges more efficiently than Nation B, it will still make sense to concentrate on producing one fruit and import the other. And Nation B will make itself poorer, not richer, by keeping out fruit from Nation A. If Nation A retaliates by keeping out fruit from Nation B—and why shouldn't it?—Nation B will be doubly punished.

That's the theory. It's pretty rock-solid. You can reject it in its entirety—as, for example, Dick Gephardt, the most protectionist of the leading Democratic presidential candidates, pretty much does. But most critics don't have the guts to defy reality and/or conventional wisdom (take your pick) to that extent. Schumer and Roberts cling to the free-trade label and endorse the general principle while claiming it no longer applies because "the factors of production can relocate to wherever they are most productive." In fact, that makes the theory even more compelling. If the factors of production become more productive, the whole world becomes richer. If there is some explanation of how a society can get richer by denying itself the fruits of this process (and most likely curtailing the whole process itself, as others misguidedly retaliate), Schumer and Roberts do not offer or even hint at it.

Read the whole thing, even if you are against the idea of Free Trade. If you are still against it, please post a comment, and we'll talk about this over the next few days.

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