The Benefits of Free Trade

November 19, 2013

The benefits of free international trade are often diffuse and hard to see, while the benefits of shielding specific groups from foreign competition are often immediate and visible. This illusion fuels the common perception that free trade is detrimental to the American economy. It also tips the scales in favor of special interests seeking protection from foreign competition. As a result, the federal government currently imposes thousands of tariffs, quotas and other barriers to trade, says Donald J. Boudreaux, a senior fellow at the Mercatus Center.

However well intended, restrictions on foreign trade harm the very people they aim to protect: American consumers and producers.

  • Freeing trade reduces imported-input costs, thus reducing businesses' production costs and promoting economic growth.
  • Over time, free trade works with other market processes to shift workers and resources to more productive uses, allowing more efficient industries to thrive.

There is a myth that more exports mean more wealth.

Reality: It is the total level of trade -- exports and imports -- that most accurately reflects American prosperity. Prosperity is defined by the breadth and variety of what Americans are able to consume. More exports increase wealth only because they allow Americans to buy more imports and give non- Americans greater incentives to invest in America, helping the U.S. economy grow. Restricting imports leaves Americans worse off.

Another myth is that free trade means jobs go overseas.

Reality: Free trade does not create more jobs, but neither does protectionism. Free trade may reduce jobs in inefficient industries, but it frees up resources to create jobs in efficient industries, boosting overall wages and improving living standards. Protectionism, in contrast, attempts to protect jobs that the market will not sustain; it does so at the expense of more innovative industries.

Free trade increases prosperity for Americans -- and the citizens of all participating nations -- by allowing consumers to buy more, better-quality products at lower costs. It drives economic growth, enhanced efficiency, increased innovation and the greater fairness that accompanies a rules-based system.

Source: Donald J. Boudreaux, "The Benefits of Free Trade: Addressing Key Myths," Mercatus Center, November 5, 2013.

 

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