Aretae seems to be willfully missing the point on free trade. It seems particularly strange since I don’t know anybody who is more concerned about future economic growth and yet he is totally unwilling to integrate future growth prospects into his – most basic – understanding of free trade.
Al wants to trade with Jill.
Al grows corn, Jill builds cars.
Since Al has more corn than he needs, and Jill has more cars than she needs, the trade makes both Al and Jill happier.
Absolutely no one disagrees with this, so repeating it continues to miss the point.
The relevant question is: if all car production moves to Jill’s economy and all corn production moves to Al’s economy, are Al’s kids or Jill’s kids better off in the future with respect to potential for economic growth?
Take an extreme example to make the difference stark. Assume economy A makes riding saddles and economy B makes touch screen displays. Are these countries really equally positioned for future economic growth? Why can’t the theory of free trade admit that the possibility of such a situation arising?
Then the caricatures flow:
Protectionism is when George convinces his Uncle to threaten (anonymously) to beat Al senseless if he trades with Jill. Then Al buys from George, is less happy than he would have been, Jill is less happy than she would have been…maybe Al doesn’t buy at all, because it’s not worth the trade….but most likely, we’ve transfered a lot of value away from Jill (no corn), a little value away from Al, and a medium amount of value to George.
Similarly, free trade is when you have the biggest navy and you use it to make sure that you get the best possible trade terms. Or free trade is when two countries sign agreements protecting politically-connected industries. These statements are silly and unhelpful.
No one is proposing that Al be beaten. To recap, here are the proposal in un-caricaturized form (obviously these are idealistic, but we’re working theoretically here):
1) Free trade: all economies must be totally free from any trade distorting mechanisms (e.g. currency manipulations, VATs, etc.) and trade with each other without restraint
2) Protectionism: countries may impose flat, fixed tariffs and no income taxes
You might object that 2) is idealistic, but it has actually existed, whereas 1) has never actually existed.
You’ll notice that under both approaches, no one is beaten, the rules of the game are fixed and clear, and there is little room for political manipulation.
Obviously both approaches are hopelessly idealistic, but it’s not clear to my why a supporter of economic growth would clear favor one approach over the other.