Better Business Basics
Better Business Basics
Economists need
to do a better job of
selling free trade[ IT'S A SMALL BUSINESS WORLD ]
The concept of free trade between nations has generated a great amount of hostility and confusion. And while it is true that economists don't agree on much, most do agree on this point: Free trade is best for a nation.
In fact, Adam Smith first demonstrated this proposition in 1776 in his book "The Wealth of Nations." Nevertheless, many outside the economics profession feel quite strongly that free trade is intrinsically harmful and costs people their jobs. Evidently, economists have not done a good job in explaining why they believe free trade is beneficial.
Suppose you tried to become totally self-sufficient. You would need to build your own house, grow your own food and make your own clothing. You would need to act as your own lawyer, your own doctor, your own mechanic and so forth. While this may be possible, your standard of living would not be what it is now. Instead, you specialize in things you do well and earn money to buy products and services from others who are specializing in what they do well. This allows us all to have more things, better quality things and pay a lower cost for these things than if we had to make them all ourselves.
Trade between countries is beneficial for the same reason as trade between people. Trade allows each country to concentrate its efforts in producing those goods in which it has an advantage. The world is thus able to produce more goods. This allows consumers in all countries to increase their consumption by purchasing goods at lower prices as well as gaining access to goods that cannot be produced domestically.
Does free trade lead to a loss of jobs? It's true that international trade will lead to fewer jobs in industries that must now compete with cheap imports. However, this does not mean that there will be fewer jobs available. Industries that produce export goods will expand as trade opens, leading to greater employment in these industries. Restricting trade may save jobs in some industries but will cost jobs in others.
There are certainly concerns voiced in the free-trade debate that go beyond the loss of jobs. And there are issues that must be addressed to ensure that free trade is fair trade. However, restricting trade does not ensure fairness, a clean environment or income equality. Restrictions simply drive up prices and reduce variety in the market place.
Eric Drabkin is an associate professor of economics at Hawaii Pacific University. He can be reached at edrabkin@hpu.edu.