Cheap Coats, Blockaded Harbors and the Value of Free Trade: View
It’s a bad moment for free trade. Republicans in the Senate are blocking three free-trade treaties -- with Colombia, South Korea and Panama -- until they are stripped of extra assistance (such as retraining) for workers whose jobs are shipped abroad. The Obama administration isn’t all that excited about these treaties or free trade in general, anyway.
The AFL-CIO is even less enthusiastic and is threatening to punish pro-free-trade politicians in the next election cycle. But a bad moment for free trade is a good moment, once again, to make the case.
Free-trade zealots, a group to which we belong, can seem more like a religious cult than mere adherents of an economic theory. But this is misleading. It is the scientifically provable correctness of free-trade theory, combined with the frustrating difficulty of making people believe it, that drives true believers to despair. It may be the most scientific axiom in all of social science: Societies prosper when they allow citizens the freedom to buy from foreigners on the same terms as they trade among themselves. The few exceptions to this rule are misused by free-trade opponents more often than they are invoked correctly.
Furthermore, the benefits of free trade do not require reciprocity. Avoiding tariffs and quotas is good for us whether China, Japan or Europe follow suit. Protectionism can do great harm to your trading partners, if that’s your goal, but it cannot do any good for you.
Blockading Your Harbor
The famous citation on all this is from the 19th century American self-trained economist Henry George, who noted that blockading another nation’s harbor is considered an act of war, and protectionism is like blocking your own harbor. “What protection teaches us is to do to ourselves in time of peace what enemies seek to do to us in time of war,” he said.
All this is Economics 101. Politics is another story. Free trade creates tumult (“creative destruction,” as economist Joseph Schumpeter famously put it). Like its opposite, protectionism, free trade generates winners and losers. Two perennial problems make the free-trade gospel a hard sell.
First, free trade requires explanation. It’s complicated. When plants are closing and people are losing not just jobs but also entire careers, it’s not intuitively obvious why keeping foreign competition out of our markets is such a bad idea, although it is. Second, the costs of free trade are visible and concentrated, while its benefits are diffuse and hard to identify. When a company moves production overseas, the Americans who lose their jobs as a result are aware of it, and aware of the cause. The beneficiaries, by contrast, probably don’t even realize that the coat they bought today at Wal-Mart is a couple bucks cheaper thanks to the move.
The salespeople who find work because retailers’ bargains draw more customers, the extra people who are employed because coat buyers have more money to spend, and so on, are all beneficiaries of free trade -- but don’t know it. What they can know is that it is mathematically certain that for the nation as a whole, these small and wide-ranging benefits outweigh the large and obvious loss. They can look at societies such as Singapore, which have prospered mightily in part because of radical free-trade policies.
Of course that is little comfort to the person who lost the job and career. The multiple answer for that is a vigorous economy that will generate new opportunities faster than the old ones disappear, an education system that prepares Americans to take advantage of these opportunities and a generous social welfare safety net for those who can’t. To deny ourselves the benefits of free trade because of a cost we could easily pay out of those benefits would be penny-wise and pound-foolish.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.