Additional Arguments in Free Trade

Additional Arguments in the Free Trade vs. Protectionism Controversy

The question of free trade vs. protection has been a perennial one in American politics. The arguments for and against have become so commonplace that it is impossible to find the original authors of many of them. Some of the arguments are interesting in themselves even though originators remain in doubt. The modern defense of protection frequently begins with the Mercantilist idea that a nation must sell more than it buys in order to have a favorable balance of trade and an annual influx of gold. In spite of its age and its obvious fallacies this reasoning continues to be used. The most widely cited argument for protection is that cheap foreign products must be kept out of the country in order to maintain high wage scales and full employment. If foreign goods, made by working men who get half the wages of domestic workmen and who live on a much lower standard of living, were allowed to enter the country one of two things would happen: either the domestic workmen would have to accept lower wages so that the domestic product could compete with the foreign product, or the industry would shut down and the working men would be unemployed. Economists such as Ricardo and Malthus answered this argument long ago by showing that high wages and consequently high standards of living of wage-earners could be traced to superior skill, machinery, and capital, or advantages in the character and abundance of raw materials or both. Consequently, the question of protection has little bearing on wages. As to employment, Ricardo's analysis of the values of international trade showed that by free trade each nation would gain most by concentrating upon the production of those items in which it had an advantage and exchanging such items for other necessities. On the other hand, A. A. Cournot (1801-1877) made it clear that the question of unemployment could not be dismissed unless both labor and capital could adapt themselves immediately to other pursuits, which in many instances would not be the case. Adam Smith, however, foresaw this type of difficulty and agreed that protection should be removed from any privileged industry by gradual stages so that severe dislocation might be avoided.

Both the infant industry argument and the transportation cost argument have been reviewed above. They are effectively used in popular discussions of the tariff question, but further exposition here is not necessary. There is one argument for protection for which there is no rebuttal except a change in outlook of the peoples of the world toward each other. It is simply this: that protection is necessary in order to assure the nation of a full supply of all necessary materials in time of war. List was a realist. He saw the virtues of free trade in a world in which order was guaranteed by a universal association or federation of all nations as a guarantee of perpetual peace. But he felt that as long as nations competed with a view to taking resort to war to settle disputes, tariff protection would be needed. This argument, of course, was not economic, it was political. Nevertheless, the economists, contrary to List, have frequently dealt with economic ideas as though the world were something different from what it is. This is not to say that List's view was correct, except in so far as he attempted to develop his ideas in close association with the real world around him.