Free trade is good for all nations

“Economists are worried about international trade” according to Harvard Professor Gregory Mankiw in an article printed by the New York Times

No less than Adam Smith, in his famous ‘Wealth of Nations’ made the case for free trade, arguing that trade among nations is like trade among people:

  • No one feels compelled to sew his own clothes and grow his own food simply to keep busy
  • Instead, we find employment doing what we do best and rely on other people for most goods and services
  • Similarly, nations should specialise in producing what they do best and freely trade with other nations to satisfy their consumption needs

This argument was expanded by David Ricardo, English economist, in the 19th century when considering: “What if one nation does everything better than another?”

His answer was that trade depends on comparative advantage – how good a nation is at producing one thing relative to another

Ricardo used England and Portugal as an example – even if Portugal was better than England at producing both wine and cloth, if Portugal had a larger advantage in wine production, it should export wine and import cloth – then both nations would end up better off

Or consider Roger Federer, the tennis champion – given his athletic prowess, he may be able to mow his lawn faster than anyone else but that doesn’t mean he should mow his own lawn – the advantage he has playing tennis is far greater than he has mowing lawns – so he should hire a lawn service and spend more time on court

More recently, Harvard economist Marc Melitz has shown that when a nation opens up to international trade, the most productive firms expand their markets whilst the least productive are forced out by competition – so resources move from the least to the most productive firms and overall productivity rises

Evidence for all this is plentiful, including:

  • In 1995, economists Jeffrey Sachs and Andrew Warner studied a large sample of nations and found that open economies grew significantly faster than closed ones
  • When closed economies remove their trade restrictions, free trade fares well e.g. Japan in the 1850s, South Korea in the 1960s, Vietnam in the 1990s


Certainly, expanding free trade hurts some people in the short term, especially those who have to find new jobs, so a robust safety net and effective retraining are needed for them

But it does not undermine the conclusion that free trade significantly raises average living standards





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