Saturday, July 12, 2008

Why don't more people like to trade?

International trade is an issue that is near and dear to my heart. Relentless economics instruction at both the undergraduate and graduate levels have made me into a committed free trader, and I'm still convinced that it's one of the best ways to save the world.
Others disagree: 
With the Doha Round at (yet another) make-or-break stage, and Election 2008 heating up, this sort of "trade backlash" is something that needs to be understood. There are several reasons why people in developed countries are so angry about trade:
1. Comparative advantage, the underlying principle of free trade, is counterintuitive and difficult to understand at first glance, even for reasonably intelligent people.
2. Any free trader worth his salt will tell you that trade is not Pareto efficient (making someone better off without making another person worse off) but rather Kaldor-Hicks efficient (making someone better off while making someone else worse off, but with the aggregate gains being higher than the aggregate losses.) In other words: although the gains outweigh the lossesthere are clear winners and losers from trade. 
3. The gains are disperse and the losses are usually heavily concentrated. We all gain when we buy cheap imported goods at WalMart, but we may not notice it or get overly excited about it. However, if your job gets outsourced, you can bet that you're going to be furious.
4. There is a clear preference towards consuming goods produced by (and, for that matter, trading with) our countrymen. For example, several economic studies have demonstrated that even after NAFTA liberalized trade borders between the US and Canada, volumes of trade between Canadian states is still much higher than cross-border flows.
I'm sure the list could go on, but I think these are some of the most important reasons. Feel free to add in the comments below. This all begs some questions: if you think free trade is the way to go, what do you make of these objections? Is this an issue worth trying to build broad public consensus on when the general public is so reflexively skeptical? And if you think that you need a public remit for free trade, how do you get it? 

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