Arguments for Free Trade

 (This is a current extract from the Patterns of Power Repository.  An archived copy of this page is held at http://www.patternsofpower.org/edition02/3541.htm)

The operation of supply and demand fuels economic growth (3.3.2).  Free trade between countries offers businesses a larger market to sell to, which enables them to become more efficient and more competitive and gives a further impetus to growth.  The European Union was partly created to gain these benefits (it was called the Common Market at one stage in its history), and free trade is now operating on an increasingly global basis.  This has speeded up the overall growth of the world economy but has also altered the geography of wealth creation (3.4.2). 

Free trade is of mutual advantage to both high-wage and low-wage economies.  Many people find it difficult to believe this – but it is borne out by David Ricardo’s classical economic theory of Comparative Advantage (which requires some understanding of other aspects of economic theory).[1]  It works because the effect of free trade is that activities are performed in the most cost-effective place.  Goods are then cheaper, so consumers have more money to spend on other items – resulting in increased business activity in both rich and poor countries.  Conversely, suppressing free trade has been likened to “self-imposed sanctions”.[2] 

© PatternsofPower.org, 2014

[1] Dr Paul Krugman explained Ricardo’s theory in his essay Ricardo’s Difficult Idea, which was available in April 2014 at http://web.mit.edu/krugman/www/ricardo.htm.

[2] Self-imposed sanctions is the title of a piece by Russ Roberts which appeared on the Cafe Hayek website, 3 Dec 2007 and included this observation:

“if you believe that the United States should trade less with the world (or if you oppose the expansion of trade), then you're essentially calling for a self-imposed economic embargo -- sanctions on ourselves. If curtailing global trade is bad for Gaza and Iran, how could it possibly be good for us? The answer is that it's not.”

This posting was available in April 2014 at http://cafehayek.com/2007/12/self-imposed-sa.html.