Free Trade Under Fire

"Ever since Adam Smith economists have been writing book after book trying to explain why free trade leads to an improvement in the welfare of everyone. Why is it that imposing trade barriers is as much of a good idea as dropping rocks into one’s harbours? Or that refusing to allow people to migrate makes people poorer both at home and abroad? Or why is it that a country choosing to go it alone, making everything domestically and stock piling goods, is expensive, inefficient and makes you worse off? And finally, why is it that a country shouldn’t really try to specialize in a little bit of everything but rather follow the principle of comparative advantage, first elaborated by David Ricardo? Economists have been doing this for a while. I picked this book because I think that, in the last 10 years, it is the one that has revisited this topic most eloquently. “The case for free trade continues to be as strong now as it was 100 years ago” The reason why I bring this up now is that at the household level, we’ve all seen very clearly these lessons that economists have been articulating for a long time. We see the virtue of being able to trade with the butcher and the baker and how my life is much worse now that I can’t. Instead, I can only trade with the few that do deliveries, as opposed to trading with all, and this restriction on trade has made me worse off. The virtue of specialization is very apparent now that I’m cleaning my toilets, now that I’m making all of my meals, fixing everything around the house, now that I’m home schooling. I was much better off when I could specialize in just doing economics. The book also talks about how raising barriers to collaborating with others makes all of us less productive, how the inability of people to move and therefore to learn from each other and makes us worse off. I know it’s a classic lesson in economics, and maybe some people will be tired of reading it. But Douglas Irwin’s book shows how—five years ago, ten years ago—the arguments against free trade are always there and always resurfacing. And yet, the case for free trade continues to be as strong now as it was 100 years ago, and I think this lockdown period has shown it on a very personal scale. He does. He also covers commercial policy quite a bit. And again, that’s a lovely example for us to think about now. To what extent, if some firms right now during lockdown give me a discount or don’t charge me for delivery, should I call that dumping? Some people are keeping their prices unchanged, but imposing rationing, while others are raising theirs. The experience of the lockdown has been that many of my tradesmen, sadly not all, have been able to give me free delivery. Would you call that dumping? Douglas raises another important and relevant question about the relationship between inequality and trade, and how free trade can lead to inequality. And, similarly now, in some ways, you can say that my experience of the lockdown and that of my wealthy surgeon neighbour is that we are more equal than we were before, but neither of us is really better off. Moreover, protectionism creates inequality itself. Some families are doing much better with homeschooling duties than others are. Some families enjoy much better places to be locked down in. Again, the link between free trade and inequality is anything but obvious."