Trade and the National Good
First consider the assertion that “nations generally gain from trade, however, it is quite possible that international trade may hurt particular groups within nations… .” What could the authors [Krugman and Obstfeld, in a leading international economics textbook] mean by this?…
In my undergraduate trade classes, I ask students this question of what criterion they think is being applied to determine if some change in economic circumstance is “good for the nation.” Many say they think the authors must mean something along the lines of: more people are helped than are hurt. Students with a smidgen of economics sometimes phrase their answer as “it provides the greatest good for the greatest number,” “it increases total utility,” or “it increases GDP.”
Dani Rodrik sees this as pointing out that economists do not have as solid a case for free trade as it appears. Instead, I see it as pointing out that the concept “good for the nation” is empty and misleading.
Imagine (cue John Lennon) that there were no nations–in fact, no governments capable of enforcing trade restrictions. With no government, arguing against free trade would amount to trying to talk someone out of making an otherwise voluntary exchange.
The world without government simplifies the free trade argument. To demonstrate that free trade is good for you, I just have to demonstrate that you are better off with unrestricted trading options than if you were constrained in your trading opportunities.
Of course, it is always possible that you might benefit by restricting someone else’s trading opportunities. It is particularly likely to benefit you to restrict others from buying goods and services that compete with what you have to sell.
Now, bring government back into the story. What government creates is an opportunity for party A to restrict party B’s ability to trade with party C. When economists argue for free trade, what we are saying in effect is that government should not exercise this power. Obviously, we can only say for sure that free trade benefits parties B and C, not necessarily party A.
I think that the case for free trade is simply that it is immoral to allow party A to interfere with voluntary exchange between party B and party C. Moreover, once party A gets preferential restrictions, we expect that parties B and C will seek preferential restrictions. One set of trade restrictions can make one party better off, but with enough trade restrictions you can make everyone worse off.
The whole notion of “national good” serves only to confuse the issue here. It comes into the discussion only because the unit of government is national. The political leaders invoke “the national good” as a way of papering over the reality that A is imposing his will on B and C. That does not mean that we should buy into such a concept.