Libertarians often discuss free trade as if free trade is a way to get a free lunch. Here’s Professor Boudreaux, for example.
In sum, the US charges tariffs on ironing boards made in China to protect a couple hundred US jobs.
As I see it, the US has two choices: 1) "protect" these jobs by making everyone pay a bit more for an ironing board; or 2) lose these jobs and get cheap ironing boards.
Under 1), everyone is slightly economically worse off because ironing boards are otherwise more expensive.
Under 2), everyone is also slightly economically worse off because we’ll be paying unemployment benefits to the workers that were laid off. I have no idea which situation costs more.
If we’re being honest, we should note that there are externalities associated with unemployed. Despite the suggestions of many libertarians, I do not believe that the laid off ironing-board-factory workers are going to start the next Microsoft. I just can’t get fully behind the "cheap chalupas uber alles" rallying cry.
If I’m being honest, I have no idea which choice is "better" – in fact, I’m not even sure how to evaluate the choices. What am I missing?
The idea is that in 2) the workers would only be temporarily unemployed. They would find a job that better utilizes American comparative advantage, and then everyone would be better off. I basically agree with the neoliberals on this point. Trying to shield industries from competitions recreates the old guild system and brings economic development to a standstill.
Where I disagree with the neoliberals is that it may be wise for a government to strategically subsidize or protect industries. The main reasons for this are a) the infant industry argument b) keeping production balanced – the danger of comparative advantage is that you can be so good at one thing (cars, textiles) that your industrial base is not diversified, and you are open to getting blindsided c) national security (it is wise to be both food and energy self-sufficient, especially if you are a reactionary monarch who wishes to thumb his nose at the “international community”.
I agree with the neoliberals on the basics as well. But, they never discuss free trade in a welfare state with 10% unemployment, i.e. reality. In this case – *the *case – the benefits of free trade are much less clear to me.
Also it’s helpful, in that last case, to have a native armaments industry.
Protectionism rests on the presumption that government both _can_ and _will_ make the right choices for the right reasons about which domestic industries to protect, and to what extent.
Even if you believe that this is a legitimate goal (and I’ll concede that the moral case for that is not completely unreasonable), the assumption that it’ll work correctly doesn’t pass the sniff test, I’m afraid.
And even if one concedes that, if done correctly, protectionism could reduce the sum total of human misery, it is readily demonstrable that, done _incorrectly_ (ie, as it always has been done before, and I would posit is likely to be always done in the future) it does quite the opposite.
Unemployment sucks. Having been unemployed, I know whereof I speak. But it’s temporary, and can be a net-positive experience in the long run, if its effect is to convince the unemployed party to pursue some other line of work, with a better future.
Trade barriers dull that signal. Even if I conceded the morality of government charging consumers money to implement a policy that fosters third-world poverty, I’d still insist that government is not, and cannot be, smart enough to judge when an intervention in the marketplace is going to be a net-positive, and when it’s going to be a net-negative, nor is government reliably moral enough to choose correctly even if that information is at hand.
My point is bigger. When free-marketers discuss free trade . . . they assume that there is otherwise a free market.
I fully agrees that *in a free market* barriers to trade are almost entirely bad.
Having said that, I think it’s worth discussing the what happens in the actual state of the world in which we live. Given all the other state interventions, it’s less clear to me that erecting barriers to trade is necessarily a net loss to the citizens of a country.
I will concede that the nonexistence of good trade barriers as a hypothetical class is not conclusively proven. However, the weight of the historical evidence inclines me to say that the burden of proof ought to be on those arguing for intervention, rather than on those arguing against it, given the demonstrable harm imposed by bad ones, and the fact that we’ve yet to see any other kind in practice.
Unless one is inclined to trust that the government will get it right, the rational default position seems to be opposition.