Everything You Need to Know About Open Markets, Comparative Advantage, and Globalizationby Williamson M. Evers, Independent Institute, January 24, 2025 -
Introduction
Economists, going back to Adam Smith and David Ricardo, are virtually unanimous that free trade benefits consumers and the overall economy. But there exist special interests who would gain in the short run from protectionist barriers. And there is a large segment of the public that doesn’t understand the arguments for free trade. Not surprisingly, there are politicians who are all too willing to gain votes by catering to protectionist interests.
People, farms, firms, and factories in America should be able to trade freely with people, farms, firms, and factories across international boundaries. You should, for example, be able to buy shoes made in Ethiopia. Economist William Niskanen stresses the moral case for free trade: Individuals have the right “to make consensual arrangements across national borders.” Without governmental interference, such voluntary interaction is harmonious and mutually beneficial. People don’t trade unless they believe they will be better off afterwards.
Much international trade can be explained by comparative advantage. Economist Donald J. Boudreaux explains that “the chief nontrivial insight” found in the idea of comparative advantage is that an economic concern’s “technical ability to produce a product” is, by itself, “irrelevant” for resolving whether “that entity should produce that product itself” or “acquire that product by first producing something else and then trading that something else” for the desired product.
Trade barriers are put in place by politicians and bureaucrats who use the machinery of government to disrupt voluntary trade and grant privileges to special interests at the expense of consumers and the general public. Jobs that are protected from the gales of competition are jobs in stagnant industries that are under no pressure to improve and innovate. Free trade provides the best deals for consumers and encourages the economy to grow.
These politicians and bureaucrats—who could be aligned with either Democrats or Republicans—cloak their bestowing of special privilege in the rhetoric of public benefit. They are sometimes successful because they are concentrating on getting their privileges, while much of the public’s attention is elsewhere.
What are some of the frequent rhetorical stratagems of the advocates of protectionist privilege?
They say that new-born industries need hot-house protection. They claim that their country needs to be strong or dominate in allegedly key industries. They claim to have special insight into what the national interest requires—and it turns out to require protecting these special interests. As James Bovard puts it, so-called “fair trade” means “subjugating” the wishes of consumers to those of government officials and the special interests they are helping.
They say that high tariffs will bring in an abundance of tax revenues—forgetting that a Laffer Curve exists for tariffs. As economic historian F. W. Taussig pointed out in 1888, if a government raises tariffs, thereby building up protected domestic businesses, then products of these domestic businesses will replace imports, and revenues from tariffs on those imports will fall.
Advocates of protection claim they worry about the “balance of trade.” Milton Friedman, Nobel Laureate in economics, clarified that a “favorable balance of trade” actually means “exporting more than we import,” sending “abroad goods of greater total value than the goods we get from abroad.” He asks, “In your private household,” wouldn’t you prefer “to pay less for more” rather than the other way around, yet that is what would be called an ‘unfavorable balance of payments.”
Yet despite rhetorical ploys like “balance of trade” and despite the special interests putting considerable time and money into obtaining privileges, we have enjoyed epochs of relative free trade.
Why have these free trade periods come about? It is because civically-active people have held—call it what you will—ideals, philosophies, or ideologies that support freedom of trade and acted on behalf of those ideals. (read more)
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