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digest: trade, the global growth engine

(Much language borrowed from the summaries and articles linked at the bottom of the post)

Free trade is blamed for a lot of things, often for exporting American jobs and forcing poor people to work in terrible circumstances. Of course, the poor locals are not enslaved, they are offered jobs, and while (sometimes) these work standards may not be up to 21st century American standards, they are still better than the poor people’s other options.

With regards to American job losses, trade is often tarred with blame that would be better assigned to technological innovation. American industrial production has actually increased significantly over the years, the secret is that Americans have lost their job to machines. Like technological innovation, trade can lead to losses for particular groups of workers; however, if you oppose free trade on these grounds you should realize you are borrowing your argument from the Luddites and should call for horse-and-buggy subsidies as well (and of course, those workers’ jobs wouldn’t have existed in the first place were it not for trade).

More practically, if it was good for Vaclav in W. Czech to trade with Vlad in E. Czech in ’88, why is it any less good for them to trade now that the country is split in two?

One of the better arguments against simply advancing free trade is that while the gains to winners from free trade are sufficiently large that a hypothetical redistribution of these gains from winners to losers could make everyone better off, economic analysis doesn’t say that these compensations actually take place.

This is true, but again, it’s also true of all change, whether it’s from trade, technological advances, or simply a change in people’s tastes (Woe is the Pog maker! Where is his safety net?)

To oppose free trade on these grounds is again to take up arms with the Luddites. Would you have supported a “timeout” on technological innovation until we came up with a plan to help out the horse-and-buggy industry? Then why support a trade timeout??

Free trade gets a bad rap because of man’s wonderful suspicion of foreigners and tendency to divide people into “in groups” and “out groups” and to elevate one and demonize the other. So free trade and immigration get tarred and feather as the enemies of America’s workers, as opposed to the truly significant (entirely domestic) problems, e.g., health care, bad schools, and, in recent times, bad banking practices.

Overall, trade has yielded not only a bounty of material good, but also of intellectual and cultural capital, an understanding of our neighbours, and a desire to sell things to others rather than to annihilate them. Yet the astonishing increase in the sum of human happiness that has been wrought by lifting hundreds of millions of Asians from the misery of subsistence farming into comfortable prosperity is [often] conveniently forgotten.”

In the course of human existence, poverty has been the rule. The past few hundred years has seen an explosion of wealth previously unimaginable. Those that have been left behind are notably those excluded from the global exchange. Trade doesn’t impoverish people; people are naturally impoverished, and in global exchange there lies the opportunity (not a guarantee) to attain wealth and security.

I’ll quickly add that none of this it to argue against a societal safety net, which I believe can be justified (in some forms) as creating a more resilient workforce and therefore economy. It is to say that free trade should not be held up as we figure out what the safety net should look like (alas, it likely will.)


Filed under: Economic Policy

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