"Harmed" by Trade?

by Don Boudreaux on November 3, 2004

in The Economy, Trade

Are some people harmed by free trade?

The sensible answer seems to be “yes, of course.” Convinced free traders who want to influence the public debate (rather than merely make noise) often offer other free traders an admonition that goes something along these lines:

“Look, we only make the case for free trade look foolish if we say that no one is harmed by it. Of course some people are harmed by it. When we import more goods and services, domestic workers in industries competing with these imports often lose jobs or must endure wages lower than otherwise. So let’s admit it up front: some people are harmed by free trade.”

Makes sense – almost. The above admonition might well be part of a sound strategy of argument. But I don’t think that, properly understood, free trade does harm even some people.

First, and most simply, a time perspective must be recognized. I might lose my job in the auto factory today because of greater imports of foreign cars. But if next year I find a better job in a different industry – a better job made possible by increased economic efficiency sparked, in part, by freer trade – how do you count me? As someone harmed by free trade? Or as among those people benefited by free trade?

Of course, not everyone who loses a job will eventually find a better job – although the jobs that their children and grandchildren will land in years to come will almost certainly be better the freer trade is today. (See Russ Roberts’s indispensable book The Choice.) Am I a victim or a beneficiary of free trade if freer trade today lowers my lifetime income but raises my children’s lifetime incomes?

Second and more significantly, focusing on international trade is inappropriate — as is focusing on only part of the changes in people’s welfare that take place in an economy.

Each worker harmed by freer trade chose to cooperate in an economy based on the division of labor. The benefits of making this choice are substantial; these benefits, in fact, are so large and obvious that most people remain unconscious of the fact that they choose to participate in such an economy. (No one must participate in the economy. Each of us is free to try to scrape out a subsistence living with little or no interaction with anyone beyond ourselves or our immediate family members.)

Choosing to participate in an economy marked by an extensive division of labor is to choose to enjoy the enormous prosperity that such an economy makes widely available. But this choice is made also on the conditions that are unavoidably necessary for such an economy to operate. These conditions include, crucially, the economic dynamism brought on by entrepreneurial change (“creative destruction,” as Schumpeter called it), advances in knowledge and the improvements in the means of dispersing knowledge, changes in consumer tastes, environmental or other external changes, and political changes (such as communism’s collapse fifteen years ago).

Without the constant search for better ways to produce, and the search for different and better things to produce, and the search for better ways to carry goods to market – without the freedom of consumers to spend their money as they see fit, and for investors to invest as they deem best, and for consumers and investors each to adjust to such changes as each sees fit – the economy would crumple. It would not even remotely resemble the economy that produces the prosperity that we are accustomed to.

Because being “harmed” by freer trade typically means that those who are harmed suffer a relatively small reduction their access to this prosperity, it seems reasonable to conclude that this prosperity is a good thing – and that more of it is better than less.

A change in the amount of commerce that we conduct with foreigners is only one manifestation, one variety, of the economic dynamism necessary for generating this enormous (and enormously desirable) prosperity.

If we identify people who lose their current jobs to freer trade as being “harmed” by free trade, then we should identify any person who loses a job for any reason (save malfeasance) as someone who is harmed by economic change.

But economic change is an inescapable, integral, and vitally important aspect of the division-of-labor economy that produces the prosperity that people are loath to lose even a small sliver of.

You cannot ethically want the prosperity and agree to participate in the system that generates and offers the prosperity while at the same time you condemn a central feature – economic change – of that system and cry that you are ‘harmed’ if and when some economic change compels you to adjust your economic activities in ways that make you worse off than you were prior to the economic change.


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