Yes, Free Trade is a Moral Good

by Ray Keating

The Keating Files – January 16, 2020

Book Excerpt from Free Trade Rocks! 10 Points on International Trade Everyone Should Know by Ray Keating

Throughout much of the history of mankind, life for most people was a daily struggle for survival. That changed markedly as the institutional foundations of the market economy were established and spread – with that process continuing today. Those institutions include establishing and protecting private property rights; competition; the rule of law; setting up tax and regulatory policies that incentivize entrepreneurship, investment and innovation; consumer sovereignty; and the freedom to trade. That freedom to trade, once again, pertains to transactions in the same town or village, throughout nations, and across international borders.

So, let’s review key points making clear the moral superiority of free trade over protectionism.

First, there is an unmistakable moral component to establishing and expanding an economic system – that is, the market economy – essential to lifting people out of poverty; to the wealth creation that enables, for example, improved food production, housing, health care and overall quality of life; to greater leisure time; to a cleaner environment; and to incentivizing the private investment, innovation and exchange that allow for greater specialization, productivity and income growth. Free trade is central to the entire market process, and the free market is essential to economic and income growth, including poverty relief.

Second, the freedom to trade and exchange as one sees fit is a basic economic freedom that makes clear the value of each individual, with that same freedom serving to spur economic growth forward. Decades ago, my eighth grade teacher noted that the United States was the most prosperous country on the planet, yet she had no idea why that was the case. She failed to understand that it fundamentally was about economic freedom, that is, individuals being free to spend, save and invest their earnings as they see fit; free to start up, build and invest in businesses; free to gain education and skills needed to achieve their goals; and free to improve their lives by trading with whomever they choose.

Third, free trade points to individuals being able to improve their lives thanks to greater choices and lower prices in terms of consumption; thanks to enhanced productivity; thanks to a diffusion of technological advancements; and thanks to expanded opportunities by serving customers not only in their own town, state or country, but around the world. In contrast, protectionism is about the politically powerful influencing government in order to gain special treatment, such as U.S. steelmakers looking to be protected via tariffs or quotas. Such cronyism means that voluntary trade is being replaced by political dictates. It means that political power is reducing individual opportunity. When a country moves away from free trade, the people with lobbyists and political connections make out better than – and at the cost of – the average person.

The Peterson Institute for International Economics found that benefits from expanded trade to the United States from 1950 to 2016 amounted to $2.1 trillion (measured in 2016 dollars), with per capita GDP and GDP per household growing by $7,014 and $18,131, respectively, with gains accruing disproportionately “to poorer households.”

In terms of a global perspective, the World Bank and the World Trade Organization jointly published a report titled “The Role of Trade in Ending Poverty.” A key message in that study was:

People measure the value of trade by the extent to which it delivers better livelihoods, through higher incomes, greater choice, and a more sustainable future, among other benefits. For the extreme poor living on less than $1.25 a day, the central value of trade is its potential to help transform their lives and those of their families. In this way, there is no doubt that the integration of global markets through trade openness has made a critical contribution to poverty reduction. The number of people living in extreme poverty around the world has fallen by around one billion since 1990. Without the growing participation of developing countries in international trade, and sustained efforts to lower barriers to the integration of markets, it is hard to see how this reduction could have been achieved...

Trade also affects long-term growth since it gives access to more advanced technological inputs available in the global market and because it enhances the incentives to innovate. Trade contributes directly to poverty reduction by opening up new employment opportunities, for example for agricultural producers, with the expansion of export sectors, and by bringing about structural changes in the economy that increase employment of low-skilled, poor workers in the informal sector. Trade also provides better access to external markets for the goods that the poor produce. 

Finally, trade is not war – despite the rhetoric sometimes used by politicians who oppose free trade. Nor is free trade particularly about winners vs. losers – again, a politically favorite accusation hurled at times. In contrast, voluntary exchanges in a free market rank as the exact opposite of war, in any sense of the word. Each party gains in a market trade; if not, the exchange wouldn’t occur.

For good measure, free trade works against actual war. After all, if individuals and businesses freely partake in commerce with individuals and businesses in another country, those two nations are less likely to go to war. Indeed, this was one of the reasons why there was such a push to reduce trade barriers after World War II – especially given that many saw restrictions on trade (that is, protectionism) during the 1920s and 1930s as a contributor to the outbreak of World War II.

Free trade does not mean that no one will lose a job or no business will fail. Quite the contrary, market competition means that consumers ultimately decide which products succeed and fail, and in turn, which businesses will succeed and fail. That, in turn, means that resources are allocated to their best or most efficient uses given the needs and demands of consumers. Competition remains essential to long-run economic growth. This stands in opposition to protectionism whereby politicians climb into bed with special interests to dole out dollars, and try to anoint winners and losers. 

Free trade is about economic growth, lifting people out of poverty, creating wealth, boosting incomes, enhancing freedom, and mutually beneficial commerce. Free trade is a moral good, and yes, it rocks!

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Ray Keating is a columnist, a novelist (his latest novel is The Traitor: A Pastor Stephen Grant Novel, which is the 12^thbook in the series), an economist, a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.