Arguments for Free Trade

[Kaine for Senate '18]

So, since I know that this forum is filled with free-traders, I was wondering: what are the best arguments for free trade?  Why do so many people place such emphasis on getting free trade?

[k-onmmunist]

So, since I know that this forum is filled with free-traders, I was wondering: what are the best arguments for free trade?  Why do so many people place such emphasis on getting free trade?

I could go on for hours about this (and probably will: I'm planning to start a series of economic essays), but instead, I suggest you read this carefully and with an open mind:

http://jim.com/econ/chap11p1.html

[Gustaf]

1. Protectionism is a "specific" policy. It's really up to you to explain why certain trade restrictions should be enforced.

2. But, hey, I can give you some. More efficient production/consumption makes the world as a whole better off. The trade wouldn't take place if it weren't beneficial. This is a lot easier to prove if you've studied economics though.

3. The basic principle to me is fairness. Free trade means a rule of law, where everyone is allowed to compete without anyone interfering. Protectionism means that whoever has the most power to do whatever they want win out. This usually consists of powerful lobby groups.

But, as I said above, I'd like you to explain what protectionist policies you want and why. It's a lot easier to show from that starting point that it isn't a good idea.

[Associate Justice PiT]

     Gustaf's second point is pretty crucial. Free trade encourages division of labor, which means more is produced, which means more for everyone. As Gustaf said, it makes more sense if you've studied economics.

[A18]

The argument for free trade boils down to one extremely-controversial proposition: that foreigners have something to contribute to human well-being. This remarkable view has never caught on, and probably never will.

[Purple State]

Simplifying economic theory... Every country has comparative advantage in the production of some good. While the US may have absolute advantage, that is, the capacity to create more of any one thing than any other nation (hypothetical), it cannot have comparative advantage in everything.

This is a pretty simple concept when you put it down like so: Assume there is a two-good market, Guns and Butter. The US requires 10 hours of labor per unit of Gun and 2 hours of labor per unit of Butter or any linear combination of the two. Canada requires 15 hours per unit of Gun and 5 hours of labor per unit of Butter. Also assume each country has 100 hours of labor to work with.

The US has absolute advantage on each good, as if it focuses wholly on Guns it can create 10 units or on Butter it can create 50 units, while Canada can create 6.66 units of Gun or 25 units of Butter. The problem is there is a trade-off. The US wants both Guns and Butter. If the US decides to focus on Guns, it has to give up 5 units of Butter for every unit of gun (uses 10 hours for Guns it could have used for butter). Meanwhile, if the US focuses on Butter it gives up one-fifth of Gun to create a unit of Butter. The reverse is true for Canada. For every unit of Guns it wants Canada must give up 3.75 units of Butter, while it must give up 0.266 (a little over one-fifth) units of Gun for every Butter it creates.

Looking at these simple numbers, the US has comparative advantage in Butter (requires 0.20 Guns per Butter, less than Canada's 0.266 Guns per Butter) while Canada has comparative advantage in Guns (only gives up 3.75 units of Butter compared to the 5 units the US gives up per Gun). In fact, it would be in everyone's interest for the US to focus predominantly on Butter, Canada to focus predominantly on Guns, and then both sides trade. This allows for the consumption of goods beyond the usual means of a nation in isolation.

Hence, free trade good.

[Sbane]

People should be allowed to trade with whoever they want, no matter where they are located. If we are going to restrict trade between countries then why not restrict trade between states? California could try and protect its orange industry from Florida's. Or Michigan could try to protect its car industry from competitors in Kentucky and Alabama. Overall trade leads to more efficient use of resources, which is good for everyone involved.

[Purple State]

People should be allowed to trade with whoever they want, no matter where they are located. If we are going to restrict trade between countries then why not restrict trade between states? California could try and protect its orange industry from Florida's. Or Michigan could try to protect its car industry from competitors in Kentucky and Alabama. Overall trade leads to more efficient use of resources, which is good for everyone involved.

Lets just stick with my slightly more reasoned argument in favor of free trade.

[k-onmmunist]

Also, goods of inferior quality should not be allowed to prevail due to government intervention. If we applied this to all goods, horses and buggies would probably still be used in parts of the world.

[TeePee4Prez]

Coming from a long time union family, I used to strongly oppose free trade.  However, I took a thing in college called Economics.  Now do I like free trade for the exploitation of extremely cheap labor?  Hell no.  However, from a principled standpoint I favor free trade and protectionism would kill us right now.  See the Hawley-Smoot Tariff of 1930.  I do think we should open up to trade, but government should intervene to lessen some of its worst effects whether it be trade adjustment assistance or IRC 199- Domestic Production Activites Deduction on corporate taxes.  Maybe more should be done with the tax code to encourage companies to hire here.  What's interesting is some companies' call centers are coming back from India because people are fed up with bad customer service. 

[phk]

[Sbane]

People should be allowed to trade with whoever they want, no matter where they are located. If we are going to restrict trade between countries then why not restrict trade between states? California could try and protect its orange industry from Florida's. Or Michigan could try to protect its car industry from competitors in Kentucky and Alabama. Overall trade leads to more efficient use of resources, which is good for everyone involved.

Lets just stick with my slightly more reasoned argument in favor of free trade.

I was just trying to point out how ridiculous it would be if states had restrictions on trade within the states( obviously done in a horrible way). All the obvious reasons had already been stated.

[Purple State]

People should be allowed to trade with whoever they want, no matter where they are located. If we are going to restrict trade between countries then why not restrict trade between states? California could try and protect its orange industry from Florida's. Or Michigan could try to protect its car industry from competitors in Kentucky and Alabama. Overall trade leads to more efficient use of resources, which is good for everyone involved.

Lets just stick with my slightly more reasoned argument in favor of free trade.

I was just trying to point out how ridiculous it would be if states had restrictions on trade within the states( obviously done in a horrible way). All the obvious reasons had already been stated.

Well yes. And thank god for the Constitution that prohibits that. This was perhaps one of the biggest problems of the Articles of Confederation. All the states stuck large tariffs up and trade restrictions. Had their own currencies. Bad stuff.

[Sbane]

People should be allowed to trade with whoever they want, no matter where they are located. If we are going to restrict trade between countries then why not restrict trade between states? California could try and protect its orange industry from Florida's. Or Michigan could try to protect its car industry from competitors in Kentucky and Alabama. Overall trade leads to more efficient use of resources, which is good for everyone involved.

Lets just stick with my slightly more reasoned argument in favor of free trade.

I was just trying to point out how ridiculous it would be if states had restrictions on trade within the states( obviously done in a horrible way). All the obvious reasons had already been stated.

Well yes. And thank god for the Constitution that prohibits that. This was perhaps one of the biggest problems of the Articles of Confederation. All the states stuck large tariffs up and trade restrictions. Had their own currencies. Bad stuff.

Exactly

[Kaine for Senate '18]

Are NAFTA/CAFTA ideal examples of free trade?  Is the ideal free trade just having no laws on the books regarding foreign goods?

[Marokai Backbeat]

Ah, I remember this thread. I never participated because people were linking to things they themselves probably didn't even understand, posting a graph they probably can't explain, and beating everyone else over the head with their Econ textbooks. Good stuff.

(For the record, protectionism is stupid. But there's a middle way between FREE TRADE FOREVER, FREE TRADE PREVENTS WAR and NO FREE TRADE EVER, RAISE ALL TARIFFS. People always need to remember the human impact, and that good economic numbers don't translate into a good economy for all.)

[Lunar]

Ah, I remember this thread. I never participated because people were linking to things they themselves probably didn't even understand, posting a graph they probably can't explain, and beating everyone else over the head with their Econ textbooks. Good stuff.

(For the record, protectionism is stupid. But there's a middle way between FREE TRADE FOREVER, FREE TRADE PREVENTS WAR and NO FREE TRADE EVER, RAISE ALL TARIFFS. People always need to remember the human impact, and that good economic numbers don't translate into a good economy for all.)

The human impact is obvious.  People in certain sectors of the economy, the ones that America is not relatively good at, suffer, while the inverse is true for sectors of the economy that America is relatively god at.  If you've been making expensive socks all your life and we open up trade with China, which can make socks far more cheaply relative to everything else they can make, you're going to be out of a job. 

Are people who support restrictions on free trade thinking of workers in sectors of the economy that would be hurt by such policies whatsoever?  Or is their empathy narrow minded?

You live in Ohio.  Repealing NAFTA and such would benefit Ohio, but at a greater cost to the rest of the world.  Not like anyone who benefits necessarily should care since it's not that easy to go back to college and move to Texas or what have you.  Well, they should care, just like Iowans should care about the damage to the common good that ethanol subsidies create

[MK]

1. Protectionism is a "specific" policy. It's really up to you to explain why certain trade restrictions should be enforced.

2. But, hey, I can give you some. More efficient production/consumption makes the world as a whole better off. The trade wouldn't take place if it weren't beneficial. This is a lot easier to prove if you've studied economics though.

3. The basic principle to me is fairness. Free trade means a rule of law, where everyone is allowed to compete without anyone interfering. Protectionism means that whoever has the most power to do whatever they want win out. This usually consists of powerful lobby groups.

But, as I said above, I'd like you to explain what protectionist policies you want and why. It's a lot easier to show from that starting point that it isn't a good idea.

That's whats up.

But sadly our free trade polices( Clinton/Bush) have hurt us more then helped.

[Jacobtm]

Are NAFTA/CAFTA ideal examples of free trade?  Is the ideal free trade just having no laws on the books regarding foreign goods?

Not ideal examples, they allow all sorts of exceptions and as we saw earlier this year, the imposition of nonsense tarrifs for political reasons.

The ideal of free trade, to me, is having no restrictions on foreign trade nor giving special deals to domestic producers.

In the past 20 years, prior to this recession, we've seen unprecedented liberalization of trade, coupled with unprecedented reduction in global poverty as companies expand operations all over the world. Poor countries have reduced restrictions on foreign investment, and rich countries have cut tariffs, meaning rich conutries get cheap goods (which has helped keep inflation down) and poor countries get jobs.

Subsidizing things, whether it's farmers or auto-makers, makes it harder for producers to compete only on the money they make from selling their products. Our farm subsidies keep giant agriculture conglomerates wealthy and in control of the market, while preventing farmers in poor countries from being able to compete at all.

Our auto-bailouts temporarily saved some jobs in the USA (though lets not forget how many people got laid off anyway), but keeping inefficient producers alive here delays the spread of auto-manufacturing around the world, to places where wages are low enough to mean jobs can actually last.


The biggest argument against free trade is that it exports American jobs overseas. This is largely true, especially of things like manufacturing, where all a worker needs is basic hand-eye coordination and the ability to learn physical motions. Any human being in the world can do these kinds of jobs with some training, so why would companies want to pay high prices for such labor when they could pay low prices?

The problem is that our government has been terrible at pursuing educational policies that prepare people for jobs actually befitting the richest country on earth. Ideally the poor would be doing our manufacturing and we'd be moving on to more specialized labor that takes more than physical abilities. Without adequately educated society though, free trade leaves alot of people behind.

This doesn't mean we should stop free trade, but that we should pick up the slack and change our education system so that people can actually learn skills that are WORTH paying them high salaries for, rather than fighting the tide to keep high salaries for jobs that anyone at all could do.

[ag]

Are NAFTA/CAFTA ideal examples of free trade?  Is the ideal free trade just having no laws on the books regarding foreign goods?

They are not ideal, obviously. For one, regional trade blocks are, in themselves, distortionary: it's not at all clear that US should be importing more expensive widgets from Mexico, when they could be had cheaper from China. Unfortunately, the WTO negotiations don't seem to be progressing much.

[ag]

1. The basic argument for free trade in the "ideal" economy is straightforward: barriers to trade (and that includes subsidies to domestic producers) distort incentives, force countries to waste resources on producing things they have a (comparative) disadavantage in producing. Very quickly, the argument runs as follows: if the US needs the same ammount of resources to produce  a 500 lbs of tomatoes and 2000 lbs of corn, while in Mexico producing 500 lbs of tomatoes takes up the resources that could be used to produce 1000 lbs of corn, the US should specialize in corn, Mexico should specialize in tomatoes, they should trade and, as a result, the same ammount of resources would be used to produce more of both corn and tomatoes - and, in the end of it, citizens of both countries would be consuming more of both; restricting trade would result in life being harder for citizens of both countries.

2. Of course, the world is not ideal and there are, indeed, circumstances where the basic argument is not necessarily working. In particular, the markets are not always perfect, and we do live in the world with zillions of various market distortions and frictions (many of them, though not, by any means all, actually caused by the governments). Now, in the world of existing distortions, additional distortions do not necessarily make things worse - sometimes, they actually make things better, more frequently they make things worse for some and better for others. Thus, in principle, one can imagine circumstances where particular arguments for particular trade-distorting policies could be made.

3. Now, unfortunately, 99% of the time these turn out to be either outright balooney, or highly self-serving crap designed to serve interests of narrow interest groups (to the detriment of most of those around).

The reason for it is not necessarily that trade restrictions are always bad (the world, as I said, is not quite ideal), but that the incentives that prompt people to go out campaigning for trade restrictions normally involve redistributing wealth in their favor - and there is no reason at all for this redistribution to be only at the expense of the foreigners . Of course, putting the arguments in nationalist terms is useful to hide the smell of the crap under the patriotic perfume. However, normally the restrictions that get through are the ones that will have a few people gaining a lot (hence, the willingness to push for them) and many people loosing a little (just not enough so that they'd campaign). Thus, it is a useful rule of thumb: if you don't see very clearly how a particular trade restriction is going to benefit you personally, chances are you - yes, you - are going to be the one to pay for it. And, though you might be willing to pay a little to make somebody else happy, remember: trade restrictions are many, and though you loose a bit from every single one, your total losses will be big.

4. Additionally, trade policy is, by nature, multilateral. Even if a trade-restriction policy can be found that on its own would make most citizens of a certain country better off - at the expense of the foreigners, of course, but let's assume that we are xenophobic/racist enough not to care - one should keep in mind that the foreigners can - and will - retaliate. Trade wars are often as destructive as real wars, so I tend to treat trade war-mongers exactly as I treat real war-mongers: with highest suspicion.

5. The argument that trade just serves the "multinationals" and "monopolists" is one giant pile of crap. In fact, trade, actually, encourages competition: when foreign firms enter a market, domestic monopolists loose some of their power.  Trade usually leads to more goods, more choice, lower prices and lower margins for the "fat cats".  As a rule, trade restrictions result, effectively, in massive transfers to the rich. Of course, domestic monopolists would prefer to have access to foreign markets without letting anyone to theirs, and might be even willing to sacrifice the former for the latter, but a) do you really feel that you owe much to domestic fat cats and b) see p. 4

6. Still, any policy change, whenever it happens, is likely to have some people suffering. If you are an American tomato producer or a Mexican corn producer, you, probably, would, in the short run, loose more from trade opening than you'd gain. Naturally, you aren't going to be comfortable w/ the argument that "in the long run", once you shift from one industry to another you'd be eating more of everything: on that, at least, Keynes had some sense: in the real long run we all are dead. Getting to the "long-run" will involve non-trivial costs for you personally, so, in general, you may have a reason to argue that you deserve some compensation. Ask (i.e., campaign) for help retraining, for buying new equipment, etc., ask for compensatory payments - trade makes the pie bigger and you should get your share. Just don't ask to restrict trade.

7. Now, there are, sometimes, valid arguments for very specific trade restrictions (as I said, there are some - rare - cases, where, given the distorted world we live in, additional distortions might make things better). These could - and should - be considered on a case by case basis (ideally, in the context of trade negotiations). However, overwhelmingly, these have nothing to do with actual trade restrictions people like to be talking about. Remember: most of the time it will be you who is going to be paying for trade distortions. Yes, you.

[MK]

Are NAFTA/CAFTA ideal examples of free trade?  Is the ideal free trade just having no laws on the books regarding foreign goods?

Not ideal examples, they allow all sorts of exceptions and as we saw earlier this year, the imposition of nonsense tarrifs for political reasons.

The ideal of free trade, to me, is having no restrictions on foreign trade nor giving special deals to domestic producers.

In the past 20 years, prior to this recession, we've seen unprecedented liberalization of trade, coupled with unprecedented reduction in global poverty as companies expand operations all over the world. Poor countries have reduced restrictions on foreign investment, and rich countries have cut tariffs, meaning rich conutries get cheap goods (which has helped keep inflation down) and poor countries get jobs.

Subsidizing things, whether it's farmers or auto-makers, makes it harder for producers to compete only on the money they make from selling their products. Our farm subsidies keep giant agriculture conglomerates wealthy and in control of the market, while preventing farmers in poor countries from being able to compete at all.

Our auto-bailouts temporarily saved some jobs in the USA (though lets not forget how many people got laid off anyway), but keeping inefficient producers alive here delays the spread of auto-manufacturing around the world, to places where wages are low enough to mean jobs can actually last.


The biggest argument against free trade is that it exports American jobs overseas. This is largely true, especially of things like manufacturing, where all a worker needs is basic hand-eye coordination and the ability to learn physical motions. Any human being in the world can do these kinds of jobs with some training, so why would companies want to pay high prices for such labor when they could pay low prices?

The problem is that our government has been terrible at pursuing educational policies that prepare people for jobs actually befitting the richest country on earth. Ideally the poor would be doing our manufacturing and we'd be moving on to more specialized labor that takes more than physical abilities. Without adequately educated society though, free trade leaves alot of people behind.

This doesn't mean we should stop free trade, but that we should pick up the slack and change our education system so that people can actually learn skills that are WORTH paying them high salaries for, rather than fighting the tide to keep high salaries for jobs that anyone at all could do.

[/b]

I can't believe some of you are defending the greedy bastards.

There's not another answer for it then GREED plain and simple.  Of course I can pay the Chinese less to make garden hose and that means more money for me.  If I had to pay the American worker I would make less.   

As for "everybody should forget about these jobs and just get educated" well that's not going to work in a country this large.  We will not survive as a service nation, and that's almost like saying everybody can become rich.   The avg salaries is somewhere's in the range of 40k-70k and it really all averages out depending on what part of the country you live.  Its false to assume you get a degree and will make over 100k a year.  Yes, there's jobs that pay that much, but its very very few of them.

I know forum members don't like to be called elitist, but this kind of talk very clearly shows it.

[Jacobtm]

I can't believe some of you are defending the greedy bastards.

There's not another answer for it then GREED plain and simple.  Of course I can pay the Chinese less to make garden hose and that means more money for me.  If I had to pay the American worker I would make less.   

As for "everybody should forget about these jobs and just get educated" well that's not going to work in a country this large.  We will not survive as a service nation, and that's almost like saying everybody can become rich.   The avg salaries is somewhere's in the range of 40k-70k and it really all averages out depending on what part of the country you live.  Its false to assume you get a degree and will make over 100k a year.  Yes, there's jobs that pay that much, but its very very few of them.

I know forum members don't like to be called elitist, but this kind of talk very clearly shows it.

It has little to do with "the greedy bastards", and alot to do with the price of goods. Let's talk about that garden hose. If a chinese garden hose costs less than an American one, which one do you think will sell better? I'm sure some people would be willing to spend more for the sake of buying American, but the vast majority will buy the cheaper hose.

The people at the top of companies who're setting up factories in China, and therefore selling cheaper goods in the US, are certainly getting rich, but they're getting rich because people are buying their products, they're producing what people want at a lower cost, and reaping the benefits.

The fact is this force isn't something that can be stopped without huge consequences. You could put huge tarriffs on foreign imports, but that just equates to a tax on all consumer goods, which hurts thte poor the most.

Whether our government steps up to the plate with educational policy or not, workers demanding 50 cents an hour will continue to get jobs over workers demanding $20 an hour, and cheap goods will continue to sell better than expensive goods that aren't any better quality. We can either try to fight a losing battle, or recognize that wage competition in manufacturing is too strong a force to combat, and try our best to educate our population so they can do work that's actually valuable.