Some skeptics of free trade argue that one of the conditions necessary for free trade to work is that capital (presumably including human capital; i.e., labor) be internationally immobile — for example, Clyde Prestowitz and Paul Craig Roberts. Other skeptics of free trade argue the opposite, namely, that free trade is more justified the more mobile are capital and labor. Here’s The Atlantic‘s James Fallows [original emphasis]:
Here’s the difference between commerce involving New York and New Jersey, and commerce involving, say, the U.S. and China. New York and New Jersey are in the same country. Why does this matter? Let’s try a little thought experiment.
Suppose you grow up in New Jersey. By the time you’re looking for a job, the flow of capital, ideas, and innovation may mean that the best opportunities are in New York. Or Idaho, Or California. Sentimentally, perhaps you’d rather not move away from home. But in a pure economic sense, it doesn’t matter in where the action is. You’re free to move there. Within the national borders of the United States, there are only trivial, incidental impediments to citizens moving wherever they want. All “factors of production” — money, material, people — can flow freely throughout the country, for maximum efficiency. That’s what the ec textbooks call for, and that’s how it can work within a given country, or a free-movement zone like in Europe.
But it’s not the same between countries. If you grow up in New Jersey and the real opportunities are in Shanghai, you can’t necessarily move there. You may not be able to move there even if you grow up in Qinghai province, China. People do move across national borders, legally and illegally. Immigration is America’s distinctive strength, so I’m glad as many move here as do. But in general, people’s economic well-being depends very heavily on the industries and opportunities in the country where they are born.
(HT Tom Palmer)
Now this contradiction among different skeptics of free trade does not prove that both of these protectionist claims are mistaken, but it does powerfully suggest that at least one of these claims is false.
In fact, both of these protectionist claims are false.
If the Prestowitz-P.C. Roberts claim about the necessity of capital immobility were true, then free trade between Manhattan and Brooklyn would be detrimental to the denizens of one or both of those boroughs. As for the opposite claim championed by Fallows, there’s much to say against it. In the letter below, I offer but one objection:
Dear Mr. Fallows:
You argue at your blog that intra-national trade differs from international trade because people and capital can much more easily move intra-nationally than they can move internationally. This point is true, but, contrary to your claim, it doesn’t mean that free international trade is more worrisome than is free intra-national trade.
Indeed, the very fact that, say, Minnesotans encounter more difficulty visiting or moving to, say, New Zealand than to New York makes free trade with New Zealand all the more important for Minnesotans. Precisely because it is so difficult for Minnesotans to visit or to move to New Zealand, without trade between New Zealand and the U.S. Minnesotans would have practically no access to the fruits of the resources and skills concentrated in New Zealand. Not so if trade between Minnesota and New York is blocked, given Minnesotans’ relative ease of visiting and even moving to New York.
One of the beautiful facts about free trade is that it enables Minnesotans to enjoy inexpensive kiwifruit without moving to where it is efficiently grown – while at the same time allowing New Zealanders to enjoy cutting-edge office products, iron ore, and other goods and services produced in Minnesota without moving to the U.S.
Donald J. Boudreaux