Commenting on this Cafe Hayek post, GMU Econ doctoral candidate Jon Murphy writes:
Of course, some will object by saying “well, we don’t live “under a system of perfectly free trade.” That is true, but wholly irrelevent. Ricardo’s treatment of trade under a perfectly free system is done for simplicity. His insights do not lose anything by adding into the system human foibles.
The lesson is that the freer trade is, the more benefits we get. As trade freedoms are reduced, so are the benefits there from.
Jon is correct.
Let’s say (realistically) that governments A and B restrict their subjects’ freedom to trade with the subjects of all other governments. Most people who are subjects of government C recognize that these obstacles to trade, erected in A and B, harm the people of C (although the people of C do not understand that the bulk of the damage done by these obstacles is suffered by the peoples of A and B). Yet if the government of C “retaliates” by restricting its own subjects’ freedom to trade with the subjects of governments A and B, many people in C applaud; they suppose that the erection of even more obstacles to trade somehow reduces the damage done to the people of C by the obstacles erected by the government of A and B.
But how can this be? Save in the unlikely circumstance that C’s retaliation will incite A and B to lower their trade barriers significantly enough and for long enough to offset whatever damage to the people of C is done by such retaliation, the government of C’s retaliation simply adds to the harm that obstructions to trade inflict on the people of C. If obstacles to the commerce of the peoples of A and B with the peoples of C harm the people C (as they do), how can adding more and higher obstacles help the people of C?
Suppose that the obstacles to trade initially imposed by the governments of A and B are, on a scale of 1 to 100, 35 (where 1 is complete and unconditional free trade and 100 is total and permanent prohibition of all foreign commerce). Further suppose that government C’s retaliation causes those obstacles to rise on the scale to 45. What difference does it make if the the increase in the size of the obstacles to trade is done by foreign governments of by the home government? None.
Surely protectionists in C would be more outraged had A’s and B’s initial trade restrictions measured (on our scale) 45 rather than 35. On what basis, then, can protectionists in C assert that their own retaliation – retaliation that raises the size of the obstacles from 35 to 45 – are now good for the people of C?
