Free Trade vs. Protectionism
According to Prof. Don Boudreaux, free trade is nothing more than a system of trade that treats foreign goods and services no differently than domestic goods and services. Protectionism, on the other hand, is a system of trade that discriminates against foreign goods and services in an attempt to favor domestic goods and services. In theory, free trade outperforms protectionism by bringing lower cost goods and services to consumers. In practice, the benefits of free trade can be seen in countries like America and Hong Kong. Both countries have a relatively high degree of free trade, and, as a consequence, have experienced an explosion of wealth.
- Free Trade [Article]: Alan Blinder summarizes the meaning of free trade in this short essay.
- Protectionism [Article]: Jagdish Bhagwati, the dean of trade economists, explains the consequences of protectionism.
- Comparative Advantage [Article]: Donald J. Boudreaux provides an introduction to the principle of comparative advantage, which is at the heart of the economic case for free trade.
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Economic Sophisms [Book]: Frederic Bastiat’s short, witty, and incisive essays expose the follies of protectionism.
- Pay close attention A Petition, chapter seven of Economic Sophisms
- Free Trade Under Fire, 3rd edition [Book]: Douglas A. Irwin, one of today's leading trade economists, reviews the facts and arguments relevant to the question: Should nations trade freely?
- The Choice, 3rd edition [Book]: Russell Roberts provides a brief, brilliant, eloquent, and moving ghost story on the consequences of free trade and protectionism.
- Globalization and Its Discontents [Book]: Joseph E. Stiglitz, a Nobel-laureate economist, shares his reasons for why he is more skeptical of free trade than are most economists.
Free Trade vs. Protectionism
Free trade is simply a policy of treating foreign goods and services no differently than domestic goods and services are treated. Free trade is a policy of allowing domestic consumers to buy from abroad just as freely as they can buy at home. Protectionism is a policy of discriminating against foreign goods and services, a policy of saying to domestic consumers, “If you want to buy foreign-made goods and services, you have to jump through some extra large hurdles to buy those goods and services.”
By far, the chief tool of protectionism is a tariff, and a tariff is a tax on imports. It’s a special levy that consumers in the home economy are forced to pay if they want to buy goods made abroad. In practice, the tariffs are imposed on the importers of the good, and so that higher tax is reflected in a higher price of the good. So, when consumers buy the good, they don’t necessarily see the tariff, they just see the price that reflects the tariff that the importer of the good is forced by the government to pay for the privilege of importing that good.
Free trade is not just a theory; it’s been practiced. The greatest example is Hong Kong. Hong Kong has virtually no natural resources; I think feldspar is the chief natural resource of Hong Kong. And Hong Kong is one of the world’s most wealthy places. And the reason Hong Kong is wealthy is because for years Hong Kong has had a policy of pretty much unilateral free trade. It has a deep water port, and it allows its citizens to buy, on whatever terms its citizens want to buy, goods and services from wherever else in the world they want to buy those goods and services. As a result, Hong Kong is very, very rich.
The United States is another example of success of free trade. One of the intended consequences of the 1787 Constitution was to turn the United States into a free-trade zone. The Founders didn’t use the term “free-trade zone,” because it wasn’t invented back then, but that’s what they had in mind. So as a consequence, we have this huge transcontinental country, from the Atlantic to the Pacific, from the Gulf Coast up to Canada, Americans are free to buy from any other American that they want in this huge free-trade zone. And so people in Maine buy pineapples from people in Hawaii, people in Hawaii buy maple syrup from people in Maine.
One of the reasons for the United States’ enormous economic growth over the past 2 centuries and high standard of living is that we have total free trade within America. There are no tariffs, there are no trade restrictions. If protectionism was such a dandy thing, then you’d think each state could make its citizens wealthier by putting up trade restrictions around the states’ borders. They don’t do that, fortunately, because the Commerce Clause in the Constitution prohibits such trade restrictions. As a consequence, we have this huge free-trade zone in America and it’s unquestionable that the free trade that takes place within this huge transcontinental nation is a major reason for Americans’ high standard of living and continued economic growth.
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Comments
Free trade means foreign companys can import to eliminate local manufacturing. The free trade we see in USA is Equity stripping our nation, no citizen has any equity in anything anymore. Our Army marches in Chinese Boots so what are they fighting for?
With Free Trade, the biggest beneficiary is the consumer with a choice on what affordable product to buy. With Protectionism, uncompetitive companies and unskilled workers are allowed to make inferior products at larger expense.
I'm glad Don praised free trade on the basis of our domestic free trade between the states and not our current trade policies with foreign countries which is the major contributor to our Depression. Free trade is good in theory...especially for non-competitive trade..as in pineapples for maple syrup. Even for competitive trade...it restrains both price and wage inflation and obviously increases consumer choice. But our corrupt government has turned a blind eye to trade abuses....sabotage of the currency markets to maintain huge trade surpluses...as with China & others. And there are other unfair advantages they practice...cheaper production through environmental abuse, prison or sweatshop labor etc. Libertarians believe in Equality Before the Law (EBTL). By allowing foreign products into our market, our government becomes obligated to extend this principle with respect to foreign government support for their exporters. When a USA manufacturer AND its American workers have to compete against a foreign producer with advantages provided by their government...that is a violation of EBTL. The worst thing China does is the sabotage of the currency markets...if the currency market was truly free, it would eventually mitigate the other unfair advantages China provides to it exporters. It is time that libertarians...like Ron Paul...realized this. Forgive my immodesty...but you could learn a lot from me...see
http://simplynatural.blogtownhall.com/2011/04/08/wholistic_libertarianis...
for my original, self styled blend of conservative and libertarian thought.