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Economic Reasoning Shifts the Burden of Persuasion Onto Opponents of a Policy of Unilateral Free Trade

This comment is the second – following this one from yesterday – of my responses to EconLog commenter Steve’s reasonable request that I and other supporters of a policy of unilateral free trade supply empirical evidence that justifies our support. Here I ask: Why put the burden of persuasion on proponents of unilateral free trade rather than on proponents of some other trade policy?

I genuinely understand and accept – indeed, applaud – the desire to test with empirical evidence all relevant positive claims contained in theories used to justify government policies. But because time is scarce, we can’t test every claim. We use presumptions – priors – to tell us which claims are sufficiently tentative and important to warrant testing. If we can, we test these claims. But we don’t test claims that are so ludicrous as to be dismissible out of hand. Nor do we test claims that are sufficiently credible that to test them would likely do nothing more than to confirm the obvious.

Our presumptions and priors can and should be informed and shaped by economic reasoning. Economic reasoning tells us, for example, that imposing a tariff on imported potato chips will raise the prices that consumers of potato chips confront. And we know this relationship to hold even if potato chips had never before been tariffed. We would regard as blockheaded someone who expressed doubt as to the consequences of a potato-chip tariff on the domestic prices of potato chips, and who asserted that it’s impossible to know if a potato-chip tariff will raise the domestic prices of potato chips until it’s been empirically demonstrated to do so.

So where does the case for unilateral free trade fit into the above?

I’m tempted to say only that the overwhelming empirical reality that voluntary trade is beneficial is sufficient to make the case for a policy of unilateral free trade. Sam voluntarily buys for $100 the gadget that Lily is selling. We know that Sam believes himself to be made better off by this trade, and we know also that Sam’s benefit from this exchange doesn’t vanish if Lily is in the habit of stuffing all of her dollars into a mattress from which she will never remove them. This unilateral trade redounds to Sam’s benefit even as poor misguided Lily suffers self-inflicted economic harm. Understanding this simple reality goes a long way towards empirically (although not statistically) establishing the benefits of a policy of unilateral free trade.

But I resist this temptation, for good reason. As Steve correctly notes, many people understand that bilateral free trade makes sense, but they believe also that unilateral free trade is harmful to any country that practices it.

Here’s where economic theory is even more useful, especially given that history supplies only very few instances of national governments following policies of unilateral free trade. Correct use of economic theory reveals relevant and telling similarities that often otherwise go unnoticed. Consider Bastiat’s “Petition of the Candlemakers.” This essay by Bastiat is a clever way to point out that we earthlings practice unilateral free trade with the sun despite the sun’s stubborn refusal to purchase anything that we produce.

Are we harmed by accepting sunlight and warmth from the sun free of charge? Of course not. So why would we be harmed by accepting valuable outputs from other countries at no or unusually low cost to us? If many people in Japan or Mexico wish to give us gifts, how are we harmed economically? Why should we accept their gifts only on condition that they accept from us gifts of at least an equal size?

More fundamentally, economic theory is useful in dispelling a terrible misconception that many people have about trade. Much of the hostility to unilateral free trade arises from the presumption that the gains from international trade are exports while imports are a cost. If this presumption were correct, then indeed a policy of unilateral free trade would be destructive. But once it is revealed that exports are a cost of obtaining the benefit of international trade, which is the inflow of imports, then a policy of unilateral free trade makes so much sense that to demand empirical support for the value of unilateral free trade comes no longer to make sense.

Economic theory, in short, puts the burden of persuasion solidly on those persons who oppose a policy of unilateral free trade.