Myth of free trade

Posted: 25 February 2013 in Uncategorized
Tags: , , , ,

free trade

Matthew O’Brien does a pretty good job capturing the myth of free trade:

There’s only one thing economists love more than free trade. That’s telling everyone else why they should love free trade too.

This rare exuberance from the practitioners of the dismal science is understandable. Free trade is the closet thing economics has to magic. The trick, and it’s quite a trick, is you don’t even need to be better at making something than somebody else for you both to be better off from you specializing in it (and trading it). As long as you both make different goods with different efficiencies, you can both gain from trade by focusing on your more efficient good. And these gains can be big — similar to inventing new, labor-saving technology — since specialization lets you produce more in less time.

But — you knew there was a “but”, right? — there are plenty of caveats. Every magic trick has some. In the case of free trade, the logic falls apart when the economy isn’t at full employment, and even when it is, the gains from trade won’t be equally shared. In other words, everybody will pay less for goods, but some will earn less, or lose their jobs entirely.

Except for two things: First, he fails to explain that it’s not economists in general who extol the virtues of free trade. Neoclassical economists are the ones who have taken it upon themselves to celebrate the existence of free international trade.

Second, much of the international trade that takes place these days does not occur through market transactions. As William Milberg has explained (e.g., in “Decentering the Market Metaphor in International Economics,” in Stephen Cullenberg, Jack Amariglio, and David F. Ruccio, eds., Postmodernism, Economics, and Knowledge),

Today’s international economic relations are characterized by considerable amounts of non-arm’s-length transactions. These take the form of intra-firm trade, inter-corporate joint ventures and alliances, special arrangements between buyers and sellers (supplies), and state-negotiated trade. The scope of this array of forms of non-arm’s-length is so broad that the relevance of the market cum locus of arm’s-length transactions is greatly diminished.

It’s time to put an end to the neoclassical myth of free international trade.

  1. Ben says:

    When the light bulb was produced, candle makers went out of businesses. When the Model T was introduced, producers of wagons had to find new work.

    If you are expecting progress that benefits everyone at the same exact time to the same extent, then you are living in a fantasy world.

    You say “It’s time to put an end to the neoclassical myth of free international trade,” yet offer nothing in it’s place. Should we practice economic isolationism then?

  2. […] less understood is the fact that, as I argued three years ago, “much of the international trade that takes place these days does not occur […]

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