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Bad Arguments for Free Trade

Here’s a letter to a very kind reader of Café Hayek, Mr. Jairaj Devadiga:


Thanks for your kind e-mail. Your question – how I “handle people who make poor arguments for free trade and free markets” – is a good one.

As you recognize, these poor arguments inflict especially heavy damage on the case for freedom. But I don’t think that I address these arguments any differently than I address poor arguments against free trade and free markets. Among the most common of economic errors – committed both by free-market opponents and proponents – is to suppose that an economy’s health is best measured by how thriving and secure people are in their current roles as producers.

In fact, of course, the health of an economy is best measured by how well it enables people to create over time for themselves high and rising standards of living. And high and rising standards of living require that people in their roles as producers adjust to changing consumer demands and not be secure from what Schumpeter called “the perennial gale of creative destruction” that is inseparable from a healthy economy.

And so, for example, those who argue for free trade by claiming that it will create more jobs, or better enable existing producers to export more, argue poorly. Free trade, of course, has no effect on the net amount of employment. And while free trade will indeed almost surely lead in the future to increased exports, these exports will not necessarily come from today’s producers. More foundationally, to champion free trade because it will increase sales to foreigners is to miss free trade’s economic raison d’etre, which is this: free trade assures greater access of residents of the home country to imports.

I believe that nothing has done more to discredit the cause of free trade than have arguments that assert that free trade is to be welcomed because it will increase the sales of existing domestic firms and, thus, increase the number of jobs in, and wages paid by, these firms. The fact that these arguments are offered by friends of free trade only makes them more damaging if they are not challenged and refuted.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030