A barrier to trade is a government-imposed restraint on the flow of international goods or services. See Barriers to Trade video and video quiz at econedlink. Protectionism, from the Concise Encyclopedia of Economics
International trade can also be modeled with supply and demand. Learn more and explore how tariffs affect the models in Tariffs and Protectionism at Marginal Revolution University. Free Trade, from the Concise Encyclopedia of Economics
In the News and ExamplesIf economists are so convinced of the benefits of free trade, why are there so many arguments against it in the press?
Popular myth: Trade barriers are good for the economy. Economic reality: Trade barriers benefit some people—usually the producers of the protected good—but only at even greater expense of others—the consumers. See this satire on lobbying: “A Petition”, by Frédéric Bastiat (pronounced bas-tee-AH). Chapter 7 in Economic Sophisms, first published 1845 in France.
Reciprocity. Popular myth: If we remove a trade barrier, shouldn’t we require our trade partners to reduce theirs? Economic reality: Unilateral reduction of trade barriers is better than no reduction at all. See Reciprocity, by Frédéric Bastiat. Chapter 10 in Economic Sophisms, first published 1845 in France. See also, “Commercial Reprisals are a Mistake,” by Pedro Schwartz.
Saving and investment: Popular myth: If we keep running a trade deficit, won’t we run down our economy, eating into our savings by continuing to buy more than we sell? Economic reality: Those who buy those foreign goods are not fools—they are searching world markets for the best deals. See also
Exports, imports, and the trade balance. The term “trade deficit” has a negative connotation, but this can be misleading, like saying, “We’re getting killed on trade.” See “The ‘Trade Deficit’: Defective Language, Deficient Thinking,” by Daniel B. Klein and Donald J. Boudreaux.
Jobs. Popular myth: Protectionism saves jobs. See Free Trade, by Alan S. Blinder.
Aren’t there any arguments left in favor of barriers to trade and protectionism? Don’t exports create jobs? What about the painful relocations and retraining when whole industries lose their comparative advantage? What about new businesses—don’t infant industries and startups deserve a chance to compete in world markets? What about agriculture? oil?—don’t we have to have domestic farm and domestic oil industries so we can be self-sufficient in the event of war? Shouldn’t we support industries that are vital to national defense? What about government revenue—won’t reducing tariffs reduce government revenue and increase the budget deficit? What about market failures—don’t government subsidies sometimes correct for market failures, perhaps making the loss of the benefits from importing worth the cost? Of these arguments, only the last one holds up, and even then, only in very specific circumstances. The conclusion is that most arguments in favor of trade barriers cannot be supported on economic grounds because the costs inevitably outweigh the benefits. Other, non-economic, grounds (political, emotional, etc.) have to be involved if you want to argue against free trade. Does National Security Justify Tariffs? by Jon Murphy at Econlib.
Do international trade agreements serve to reduce barriers to trade? It depends. See Free Trade and TPP, by Pierre Lemieux at Econlib.
A Little History: Primary Sources and ReferencesA Brief History of International Trade Policy, by Douglas A. Irwin on Econlib
Has there ever been a period in history characterized by free trade? Briefly. The repeal of the Corn Laws in the United Kingdom sparked such a brief era, which lasted only a few decades. See Unilateral Commercial Disarmament, by Pedro Schwartz on Econlib.
The Balance of Trade, by Frederic Bastiat. Selected Essays on Political Economy, originally published in 1845. The Myth of Free-Trade Britain, by John V.C. Nye on Econlib
Did the Smoot-Hawley tariff contribute to the Great Depression? Great Depression, from the Concise Encyclopedia of Economics. See also Rustici on Smoot-Hawley and the Great Depression at EconTalk.
Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home, by Adam Smith. Book IV, Chapter 2 in the Wealth of Nations
Advanced ResourcesSome Aspects of the Tariff Question, by Frank Taussig on Econlib
Protectionism and the labor market. Protection or Free Trade, by Henry George on Econlib. Particularly see Chapter XXII, The Real Strength of Protection.
Free Trade and Other Fundamental Doctrines of the Manchester School. Francis Hirst, editor. A Lecture on Free Trade: In Connexion with the Corn Laws by Thomas Hodgskin, on Econlib. Related TopicsBenefits of Trade and Comparative Advantage Trade, Exchange, and Interdependence Balance of Trade and Balance of Payments Roles of Government Consumers Government Failures and Public Choice Analysis There are two ways to close the gap [between rich and poor]. The first is to concentrate on making the poor better off. Mostly that has happened, thanks to liberalized international trade and reduced costs for shipping goods. Just as Walmart and Amazon have cut costs for Americans, the introduction of container shippin...
by Pierre Lemieux Manufacturers or dealers often try to be on the safe side by being more nanny than the Nanny State. According to the Wall Street Journal of January 24, a California court will soon decide whether the likes of Starbucks have to put a health warning in their shops or perhaps on every coffee cup....
When growing up, I was frequently told that the GOP was the "small government" party. Back in the early 2000s, the GOP finally gained simultaneous hold of the Presidency, the House and the Senate, for the first time in my life. Now they could finally implement their small government vision. Instead government spendin... |