Question

Economists seem convinced that overall effect of trade between countries is positive, that the benefits outweigh the costs. And yet many groups continue to effectively lobby for protection for their industries and surveys suggest that the majority of voters consider trade to be harmful. The writings of Frederic Bastiat provide simple but logical examples in an attempt to demonstrate the absurdity of protectionist policies. Yet most people probably have never heard of Bastiat and have probably never heard the arguments that economists make every day in their teachings and writings. Which of the following do you believe explains this?

a. Economists are wrong and don't recognize the real-world costs that foreign competition imposes in the home country.

b. Economists are correct, but have failed to effectively communicate these ideas to the public at large.

c. Economists arguments make sense, but there are other factors beyond economics to consider when developing trade strategy.

d. None of the above: If you select this provide another explanation.

Given your answer, what do you propose as possible solutions to this problem?

Answer 1

The best explanation is given by (c) Economists arguments make sense, but there are other factors beyond economics to consider when developing trade strategy.

While trade does create prosperity for both the countries overall, the distribution of gains is not equitable. Often the low cost workers in capital intensive countries tend to lose as most of the labor-intensive products are exported. Thus, poor may not necessarily benefit from free trade as much as the owners of capital do and the workers may see increased unemployment to be a consequence of free trade. It is for the government to correctly account for the profit that different sections of the society is making form trade and ensure equal distribution through taxes and redistribution policies. Also a lot of the times there may be political conflicts with the trading partners and people care not only about the economic benefit but about gaining an upper hand in the political relations and dominance of the world. For instance, the US-Cina trade war is a classic example of this as both the countries are losing due to the war, but both will continue with it to display a position of power which may be more important for the citizens. This is also somewhat a failure of economists to communicate clearly as shown in part (b) and more effective communication through layman language can also help tile people in the direction of free tarde.