The Moral Imperative of Free Trade

When debates over trade arise, one often hears calls for “protecting American jobs” through tariffs and trade restrictions. These arguments can sound initially compelling: why shouldn't we defend domestic industries against cheaper foreign competition? Why shouldn’t we “put America first?” But if we dig beneath a surface-level analysis, we find that, while protectionism may shield a visible few, it comes at a great but often hidden cost to the unseen many, and that free trade benefits orders of magnitude more Americans than do protectionist tariffs—both as workers and consumers. Nor is the case merely a question of economic expediency, but a moral case that touches on the well-being of citizens across virtually every material aspect of their lives.

Despite being a divisive concept politically, in economist circles the benefits of free trade and perils of protectionism are widely known and extolled, even across divergent schools of political economic thought. From the Classical economists like Adam Smith and David Ricardo—to whom we owe the theory of comparative advantage, more about which later, to Monetarists like Milton Friedman, to Neo-Keynesians like Paul Krugman, the overall beneficial nature of free trade is a point of concordance, even as schools disagree around the margins. Krugman once put it thus:

"If there were an Economist’s Creed, it would surely contain the affirmations 'I believe in the principle of comparative advantage' and 'I believe in free trade.'"
— Pop Internationalism, 1996

There are multiple arguments that can illustrate the benefits of free trade as contrasted with protectionist policies. One could, for instance, argue on the basis that free trade reduces conflict and promotes cooperation among nations and diverse peoples, fostering a more peaceful world. One could also, however, argue the benefits of free trade on a purely domestic basis, contra the protectionist “America first” crowd. Perhaps the easiest way to explain why free trade is economically and morally preferable to protectionism—benefiting the very people the nationalists claim they are protecting by way of tariffs is with a simple illustrative example that takes into account both the obvious economic displacements that can derive from international trade, as well as the widespread benefits that may be less easily noticed.

Suppose that another country, let's say India, can produce steel less expensively than US manufacturers. Without any barriers to trade, more US purchasers will buy steel from Mexican producers as opposed to buying from US producers. This will likely negatively impact some subset of jobs in the US steel production industry. That's the surface-level negative impact of free trade that is often invoked in favor of protectionism—imposing a tariff that artificially raises the price of imported steel. But wait! What about the American businesses that don't produce but use steel? Construction trades, contractors, real estate developers, metal fabrication industries, vehicle and equipment manufacturers, individuals working on home improvement projects, and many more. And what about all the additional industries and individual consumers who make use of these secondary products which are themselves made from steel?

By purchasing Indian steel at a lower cost, all these industries and individuals that make use of steel in any way accrue cost savings, savings that allow investment in new projects, business expansion, hiring new workers, etc. And by producing the same products at lower cost, they pass some of these savings to the end consumers of those products in turn, who also benefit from the passed on cost savings. By extrapolation of this process across the entire sector of the economy that relies upon steel, one can easily see just how impactful such effects can be. These are the less obvious benefits of free trade that exist below an initial surface level analysis.

But perhaps you aren’t convinced these benefits outweigh the potential job displacements in our domestic steel production industry. Let’s go back to our hypothetical US steelworkers who may have lost jobs or face decreased job security due to their industry being outcompeted by another. How many people does this group comprise? Probably a few thousand, as the total number of workers in the entire US domestic steel and iron industry is about 150,000. How many more jobs are there in those other domestic industries who rely on steel than in those involved in its domestic production? Their jobs will conversely be made more secure. How about the new jobs in those and other industries that will be created by the additional value saved under free trade? This combined figure will certainly number in the millions. And how many more American consumers are there who make use of steel products? Well, that's virtually the entire population of some 350 million people. Tariffs, which erase these cost savings, harm these many in preference of the few in the protected industry. As Spock put the consequentialist principle, "The needs of the many outweigh the needs of the few." 🖖🏻

We must further consider that this example involves just one single industrial product. Expanding these arguments to the whole economy, including to end-consumer goods, the amount of value saved by American consumers (read: all of us) is enormous--value that can be transferred to other aspects of our lives, from necessities like retirement, childcare, education, and healthcare investment, to all the many luxuries that improve our quality of life in myriad ways. This is the moral component: by creating this transferable economic value, free trade greatly improves the overall well-being of a populace. Tariffs, conversely, erase much of this value, and moreover in a way that is highly regressive, since those with relatively lower means spend a much higher percentage of their overall wealth and income on the goods and services that are affected by tariffs. Tariffs protect the most visible few while harming all of us, and harming the poorest most of all.

The sad irony at the heart of nativism and protectionism is that in ostensibly trying to “put America first,” not only are we harming others, but ourselves as well. International trade is not a zero-sum game with winners and losers, but a mutually beneficial exchange that allows each country or region to specialize economically in what they can produce with higher relative efficiency, then trade with others for what they in turn can produce with higher relative efficiency, meaning that the overall economic output of the global market is higher for the same inputs of capital, labor, and natural resources. This is the core insight of the aforementioned principle of comparative advantage. In short, the overall market efficiency is maximized and more value is created for everyone trading in the market. More goods, lower costs, reduced waste of natural resources, and higher standards of living, both domestically and globally.

One may be convinced by the preceding arguments, but still protest that relevant ethical questions surrounding trade remain unanswered. “What do we do about the people whose jobs are displaced by global trade?” “What about lax labor or environmental standards abroad?” “How about industrial sectors crucial to national security? Shouldn’t we protect them and disincentivize purchasing of products such as computer processors from adversarial nations?” Could these factors be exceptions to the free trade rule?

As to the first, there is no difference in how we should address job losses to global trade versus how we should address job losses to other economic factors. Namely, we should ensure that we have a robust system of social well-being, which includes unemployment insurance, universal healthcare not tied to employment status, and free or easily affordable education and vocational training. In addition to providing for those who have lost jobs, such a system fosters the freedom, civic virtue, and economic adaptability of the populace. As for the question of labor and environmental standards abroad, tariffs are unlikely to improve matters economically for the working populations of those countries, for reasons which should be apparent by now, and these matters are best dealt with through international agreements—trade agreements, environmental treaties, and international law. As to the last issue of national security, in some cases it may make sense to impose limited, targeted tariffs against imports of critical components from adversarial nations. We needn’t be absolutists, but we recognize that this has a cost—a cost to our own comparative advantage and peacetime well-being that we may be willing to pay in some cases for reasons of our greater concern for national security.

At its core, the debate over free trade is not just about economics—but an important moral question that asks us to look below the most obvious and superficial effects of international trade to recognize the more profound effects of trade that resonate throughout the entire domestic and global economic system. Do we craft policy to protect the few whose losses are most visible, or to empower the vastly greater numbers whose gains in quality of life often go unnoticed? We should not turn a blind eye to those who bear the brunt of economic change. But we must address their needs not by hindering the prosperity of both our own citizens and people around the world, but by expanding the social and civic infrastructure that allows everyone to share in it. Free trade, properly managed, creates greater wealth, greater opportunity, more well-being, and fosters global peace better than any barrier ever could.