CHAPTER: THE GAINS FROM TRADE
Trade can make everyone better off. That is one of the Ten Principles introduced in Chapter 1.
If this is so, you might ask, why then do we find so much opposition to free trade and globalization? There are two reasons.
The first is a lack of understanding. By now, you’ve read Chapter 3, and you know that the theory of Comparative Advantage involves subtle reasoning. As you might imagine, many people aren’t aware of this theory, not having taken a course in the Principles of Economics. And even if they have, they may fail to appreciate the theory’s very important lessons—perhaps because they were using the wrong textbook.
The second reason that some people oppose free trade has to do with special interests. When a nation engages in international trade, it is better off overall. But within that country, there will be winners and losers. The gains may outweigh the losses, but the gains tend to be spread out over large numbers of people, in a way that prevents them from recognizing how trade benefits them. The losses from trade are often highly concentrated among small groups of businesses or workers, who feel the loss acutely. As a result, the losers from trade are often more vocal than the winners.
An example might help: Consider what would happen if the U.S. government eliminated all restrictions on importing steel. The availability of cheap foreign steel would mean lower prices on goods made with steel—things such as construction equipment and automobiles. This would benefit the many businesses and consumers who buy these products.
But not everyone would gain: U.S. steel producers would face much greater competition from abroad. The result may be layoffs among steel workers and bankruptcies within the U.S. steel industry.
Each worker who stands to lose his or her job has a strong and obvious incentive to fight the expansion of trade. But each of the many consumers who would benefit from lower car prices has a much weaker incentive to lobby for free trade. Most consumers probably aren’t even aware of how steel imports benefit them.
So the opponents of trade are sometimes more vocal than the supporters, even though free trade benefits the nation as a whole.