Bryan writes over at EconLog:
Counterintuitive claim: Free trade makes countries richer, even if the other countries have big advantages like cheaper labor or more advanced technology.
Intuitive version: We’d be better off if other countries gave us stuff for free. Isn’t “really cheap” the next-best thing?
I use versions of this argument all the time.
But there is a problem with it.
Who is “we?”
How do you answer that without being a utilitarian and adding up net costs and benefits?
When I first started teaching trade, I used the standard efficiency argument that the gains to those hurt by tariffs are outweighed by the costs. I don’t like that argument anymore. But it is hard to avoid. So hard that even Bryan, who doesn’t like utilitarianism finds himself invoking it implicitly. But maybe he has a different story. I’m listening.
There is a natural tendency in economics or at least in writing about it to treat nations like people. And to talk about “America’s gains from trade” and “America’s comparative advantage.” I think this kind of shorthand (which is really another way of saying “net gains”) is natural because we’re often talking about national economic policy. But as I have learned from my co-host, borders are a red herring. And as I’ve learned from Adam Smith, expanding the scope of trade is what creates prosperity and opportunity, both within borders and across borders. I think that’s the way to think about it, not in national terms. But it’s very hard to think that way. I am working on it.