18 January 2019

The Free-Trade Paradox The Bad Politics of a Good Idea

By Alan S. Blinder

“We must always take heed that we buy no more of strangers than we sell them, for so we should impoverish ourselves and enrich them.” Those words, written in 1549 and attributed to the English diplomat Sir Thomas Smith, are one of the earliest known expressions of what came to be called “mercantilism.” Update the language, and they could easily have been tweeted by U.S. President Donald Trump, the most prominent mercantilist of today. Trump believes—or at least says—that the United States “loses” when it runs trade deficits with other countries. Many Americans seem to agree.

Yet the economists Adam Smith and David Ricardo made the definitive case against mercantilism and for free trade more than 200 years ago. Their arguments have convinced virtually every economist ever since, but they seem to have made only limited inroads with the broader public. Polls show only tenuous public support for free trade and even less understanding of its virtues.

Some of the problem comes from the nature of the case for trade. Unlike other economic concepts, such as supply and demand, the idea of comparative advantage—which holds that two countries can both benefit from trade even when one can produce everything more cheaply than the other—is counterintuitive. Defenders of free trade also have to contend with populist politicians and well-financed opponents who find foreign workers and firms easy scapegoats for domestic economic woes. Worst of all, economists may be fundamentally misunderstanding what most people value in the economy. These are hard problems to solve. Governments should do more to help those hurt by trade, but building the necessary political coalitions to do so is tricky. Economists should do a better job communicating with the public, but at the end of the day, they may simply have to accept the inevitable: convincing most people of the value of free trade is a losing fight.

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