≡ Menu

Some Difficult Questions About Trade Policy

In my most-recent column for AIER I tackle some of the more difficult questions about trade policy. A slice:

It’s true, of course, that when EU countries before the Russia-Ukraine war imported gas and oil from Russia, Europeans came to depend, to some degree, for their standard of living on the government of Russia. Even a first-grader understands that if the Russian government later restricts its citizens’ ability to export, Europeans will suffer as a result.

But the reality of this suffering by Europeans today does not imply that European governments were earlier myopic or otherwise unwise not to obstruct their citizens’ ability to import energy from Russia. The pre-war gains that Europeans reaped as a result of this trade are real and must be counted against whatever harms Europeans now experience as a consequence of their dependence on trade with Russia.

And so we encounter one important tradeoff: The gains to the home country from pre-war trade with a foreign aggressor must be weighed against the losses that result from whatever dependence on this trade pinches on the home country during the war. In the heat of battle it’s tempting to leap to the conclusion that those pre-war gains cannot possibly have been worth their costs. But this conclusion might be mistaken; it’s an empirical question that cannot be answered in the abstract.

By acquiring gas and oil from Russia before the war, Europeans were able to devote more of their resources than would otherwise have been the case to producing goods and services other than gas and oil. Is the cost of Europe’s dependence today on Russian supplies of gas and oil greater than the accumulated benefits that Europeans reaped from this same dependence before the war?

In this particular case, much of what Europeans were instead enabled to produce as a result of buying gas and oil from Russia were inputs and infrastructure for a move to a ‘green energy’ economy. My own assessment is that this government-driven forcing of ‘green energy’ on itself was a calamitous policy mistake by Europe. And so if today it is in fact true that Europe’s dependence on Russian gas and oil isn’t worth the cost, the ultimate reason isn’t grounded in Europeans having had too much freedom of trade but, instead, in Europeans unwisely and myopically pursuing what we can now ironically describe as unsustainable sources of energy.

This fact points to a second tradeoff: Empowering the home government today to use trade policy to protect against unfortunate commercial entanglements in the future raises the prospect of failure by the home government.

Next post:

Previous post: