Blinder - The Free Trade paradox

What is the main issue?

• free trade is a fundamentally sound economic concept support by almost every economist, but it faces overwhelming political difficulty and limited public support

• the politics of free trade are “bad’ evne though the idea itself is “good”

Why have economists failed to convince the public?

• the idea of comparative advantage is confusing 

  • hard for people to grasp how both countries benefit from trade even when one can produce everything more cheaply than the other

• gains are invisible, losses are highly visible 

  • trade creates both winners and losers

  • the gains are widespread but small for each person even though they are larger than the losses 

  • the losses are concentrated but highly visible (i.e. an industry losing their jobs)

• people care more about jobs than cheap goods

  • having a well-paid job is more valuable to them than getting cheaper goods

  • most americans with pay more for domestic products

• trade deals are easy political targets

  • harm can be traced directly to government action, thus politicians would face no re-election 

  • easy to blame foreigners or corporations for trade = higher tariffs, more closed economy 

• mercantilist thinking persists

  • protectionist belief that a country loses in trade deficits

  • opponents of trade use powerful deceptive arguments in lobbying to sway politicians. They blame foreign exporters and use them as scapegoats.

What is protectionist thinking?

• an economic policy that advocates for restricting international trade to protect domestic industries from foreign competition

what is comparative advantage?

• the economic principle that states countries or individuals should specialize in and trade goods or services for which they have a lower opportunity cost than others and everyone will benefit