Robert Gilpin on the case for free trade

Economists of every persuasion are convinced that free trade is superior to trade protection. In fact, they consider free trade to be the best policy for a country even if all other countries should practice trade protection, arguing that if other countries resort to trade protection, the economy that remained open would still gain more from cheaper imports than it would lose in denied export markets. … Underlying this liberal commitment to free trade is the belief that the purpose of economic activity is to benefit the consumer and maximize global wealth. Free trade also maximizes consumer choice, reduces prices, and facilitates efficient use of the world’s scarce resources. … Economists have strongly disputed the alleged benefits of trade protection. Trade protection, they point out, reduces both national and international economic efficiency by preventing countries from exporting those goods and services in which they have a comparative advantage and from importing those goods and services in which they lack comparative advantage. Protection also decreases the incentive of firms to innovate and thus climb the technological ladder; it also discourages shifting natural resources to their most profitable use. … Most American economists have… attributed almost all of the relative decline in the wages of low-skilled American workers to technological changes within the American economy itself. Technological changes such as the computer and information economy, they have argued, significantly decreased the demand for low-skilled workers and greatly increased the demand for skilled, especially college-educated, workers. Furthermore, these economists have noted that the relatively small trade flows between the United States and low-wage economies cannot possibly explain the roughly 30 percent difference in wages between skilled/college-educated and unskilled workers in America. Instead, this decline in the wages of low-skilled workers has been due to such technological changes as automation, lean production techniques, and computerization. … It is certain that trade protection is not a wise solution to the problems of stagnant wages, income inequality, and job insecurity. The solution lies in job-training programs and other programs to aid adjustment to rapidly changing economic and technological developments. … Trade, however, does create losers as well as winners in the areas of both wages and employment. Economic sectors in which a nation possesses or wins a comparative advantage gain from trade, while sectors in which a nation loses comparative advantage suffer. As losers frequently feel the pain more acutely than winners feel the gain, both ethical and political reasons make it necessary that national policy assist or compensate workers and others harmed by trade liberalization. In any case, the worst response a nation can make to inevitable shifts in comparative advantage is to close itself off from the stimulus of trade competition.

–Robert Gilpin, Global Political Economy: Understanding the International Economic Order, ch. 8.

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Ryan McCarl
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