Atlas Economic Research Foundation is circulating a petition in favor of free trade (HT Sasha Volokh). The plan is to unveil the petition before the April 1 G20 meetings in London. Here is the text of the petition. You can sign it here if you are interested.
Free Trade Is the Best Policy
The specter of protectionism is rising. It is always a dangerous and foolish policy, but it is especially dangerous at a time of economic crisis, when it threatens to damage the world economy. Protectionism’s peculiar premise is that national prosperity is increased when government grants monopoly power to domestic producers. As centuries of economic reasoning, historical experience, and empirical studies have repeatedly shown, that premise is dead wrong. Protectionism creates poverty, not prosperity. Protectionism doesn’t even “protect” domestic jobs or industries; it destroys them, by harming export industries and industries that rely on imports to make their goods. Raising the local prices of steel by “protecting” local steel companies just raises the cost of producing cars and the many other goods made with steel. Protectionism is a fool’s game.
But the fact that protectionism destroys wealth is not its worst consequence. Protectionism destroys peace. That is justification enough for all people of good will, all friends of civilization, to speak out loudly and forcefully against economic nationalism, an ideology of conflict, based on ignorance and carried into practice by protectionism.
Two hundred and fifty years ago, Montesquieu observed that “Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.”
Trade’s most valuable product is peace. Trade promotes peace, in part, by uniting different peoples in a common culture of commerce – a daily process of learning others’ languages, social norms, laws, expectations, wants, and talents.
Trade promotes peace by encouraging people to build bonds of mutually beneficial cooperation. Just as trade unites the economic interests of Paris and Lyon, of Boston and Seattle, of Calcutta and Mumbai, trade also unites the economic interests of Paris and Portland, of Boston and Berlin, of Calcutta and Copenhagen – of the peoples of all nations who trade with other.
A great deal of rigorous empirical research supports the proposition that trade promotes peace.
Perhaps the most tragic example of what happens when that insight is ignored is World War II.
International trade collapsed by 70 percent between 1929 and 1932, in no small part because of America’s 1930 Smoot-Hawley tariff and the retaliatory tariffs of other nations. Economist Martin Wolf notes that “this collapse in trade was a huge spur to the search for autarky and Lebensraum, most of all for Germany and Japan.”
The most ghastly and deadly wars in human history soon followed.
By reducing war, trade saves lives.
Trade saves lives also by increasing prosperity and extending it to more and more people. The evidence that freer trade promotes prosperity is simply overwhelming. Prosperity enables ordinary men and women to lead longer and healthier lives.
And with longer, healthier lives lived more peacefully, people integrated into the global economy have more time to enjoy the vast array of cultural experiences brought to them by free trade. Culture is enriched by contributions from around the world, made possible by free trade in goods and in ideas.
Without a doubt, free trade increases material prosperity. But its greatest gift is not easily measured with money. That greatest gift is lives that are freer, fuller, and far less likely to be scalded or destroyed by the atrocities of war.
Accordingly, we the undersigned join together in a plea to the governments of all nations to resist the calls of the short-sighted and the greedy to raise higher the barriers to trade. In addition, we call on them to tear down current protectionist barriers to free trade. To each government, we say: let your citizens enjoy not only the fruits of your own fields, factories, and genius, but also those of the entire globe. The rewards will be greater prosperity, richer lives, and enjoyment of the blessings of peace.
I believe it is inarguable that on a global scale, free trade creates wealth, and protectionism destroys wealth. However, for an advanced local economy (the United States, for example), decreasing the barriers at which we currently trade would likely drive down real wages and lead to exportation of jobs in those protected and quasi-protected industries. In other less developed economies (Mexico for example; although with NAFTA, this is not the best counter to the U.S.), the reverse would be true. There would be an influx of employment and an increase in real wages. At a time like this, while we are in a financial/employment crisis, how do we reconcile the consequences with the further opening of trade?
Granted, I believe the longterm enhanced welfare effects override the short term losses; but how do you explain that to Flint, Michigan? How do you get politicians to agree to something that conflicts so greatly with the current interests of their constituents and would likely only create wealth long after their terms have run?
I am all in favor of free trade, but it seems as though the United States’ current position is not well-suited for a destruction of trade barriers. To bolster this contention, I would point to the lack of job retraining services for lost industries, the widening gap between socio-economic classes, and the diminishing quality of our public educational institutions. It seems to me that at least in the short term, while free trade is welfare enhancing, you would not see a pareto efficient allocation. Thus, while free trade is a longterm welfare enhancing mechanism, the short term consequences for industrialized nations with more than minimal protectionist policies create an almost insurmountable obstacle for the legislators who must implement such policies.
I know Paul Krugman’s work on comparative advantage would be all for the advancement of free trade, but I wonder if his political positions would let him indulge in such theories these days.