Free Trade/Protectionism

Denerick

I generally find myself in favour of free trade as Protectionism achieves little other than artificially inflating prices so as to appease a powerful political bloc (Take for example European farmers, who insist on keeping alive the Common Agricultural policy, despite the inherent madness in trying to impose a static policy in an industry crying out for reform, diversification and innovation) Free Trade overwhelmingly benefits emerging economies because they are able to sell their produce to wealthy nations at a competitive price, hence benefitting them and benefitting us. In the long run we all win due to specialisation and economic rationalism.

Protectionism on the other hand is essentially motivated by nationalism, the urge to appease the domestic electorate by keeping certain industries alive on a drip, when the stark reality is that they need to die and make room for more competant and professional industries. I love the phrase 'creative destruction', by the way

Any thoughts?

Joe1919

The text-book theoretical model would generally be in favour of free trade in that each country can produce what it has a comparative advantage in.

However, there are losers because of the change in markets. e.g Irish farmers and uneducated manual workers and this can cause inequality, which can be corrosive within the economy .

One solution is that the overall gains from free trade need to be shared with those who loose out because of this.

http://www.jstor.org/pss/2138423
http://en.wikipedia.org/wiki/Free_trade

Denerick

It is true that the working class can and do lose out from Free Trade. The Blue collar workers in the old rustbelt states in the USA are a good example of this. If it is 10 times cheaper to produce steel in India, why make it in Ohio? Free Trade would probably work best in a system wherin workers would have the opportunity to retrain and reskill - easier said than done for a 50 year old who worked in a steel plant since his late teens.

Another example would possibly be the car industry in Detroit. General Motors was able to pay their workers a middle class wage which enabled the American Dream society of the breadwinner husband, the dutiful housewife, the 2.3 children, the suburban home, the nice car etc. etc. However the long run this has proven unsustainable. Also add in a terrible lack of innovation from the American car industry (Producing high yield 4x4s at a time of rising oil prices, for example)

Joe1919

One thing that can be said in favour of European food policy is that food is relatively cheap. Although people often complain about the cost of their shopping, you will often find that when items like convinence type foods, toileteries, petrol, cigarettes and mobile phone credit etc. are removed, the actual price of basic food is relatively cheap.
Even the poor in Europe can afford food at the moment and it is often remarked that one has a greater chance of being overweight in Europe and America if one is poor. This I imagine is different than in parts of poorer Africa or in Europe during medieval times where being poor meant starvation.