There are no losers in trade – Econlib

It is often said that international trade has winners and losers. US consumers win when they buy wine imported from France, while California winemakers lose. that’s life, economists advise. Nothing should be done about this situation. The reason for this is that it is also often said – at least among those of us with economic knowledge – that the gains of the winners from free international trade easily outweigh the losses of the losers, making trade efficient. Economists call this outcome ‘Kaldor-Hicks efficient’. Because the winners’ profits are greater than the losers’ losses, the winners can in principle fully compensate the losers, wiping out the losses while still leaving a net gain for the winners. Therefore, even without actual compensation for the losers, free trade makes society As a whole better off despite the fact that some individuals suffer net losses.

Open any textbook on international trade and you will see that when the author presents the normative arguments for free trade, he is almost certainly making an argument similar to the one in the previous paragraph.

This argument is sophomoric utilitarianism and therefore unconvincing. “Why,” asks a serious trade skeptic, “should we tolerate policies that allow some people – even a majority of people – to make profits at the expense of other people?” Good question. It is a question that the author of the economics textbook cannot answer.

Fortunately, the common statement that “trading has winners and losers” is emphatically true not correct.

One way to see the flaw in this statement is to recognize that trade is only one of countless different sources of economic change. There is nothing unique or special about trading with foreigners that causes some companies to lose profits and some workers to lose their jobs. Each Changes in economic activity have these effects. If Americans have fewer babies, Americans will buy fewer diapers, creating profits and job losses among U.S. diaper manufacturers. When Americans enjoy eating more meals at home, they buy fewer restaurant meals, creating profits and job losses in American restaurants. Improvements in automotive technology over the years have reduced the demand for neighborhood garage mechanics.

The polio vaccine has wiped out many jobs in factories that make wheelchairs, leg braces and crutches.

In light of this reality, if someone wants to continue to describe trading as “having winners and losers,” that person must—to be consistent— each economic changes, such as the introduction of the polio vaccine, have both winners and losers. This description proves that there is nothing unique about international trade.

But there is a deeper reason why it is wrong to say that trading has winners and losers: losses are different from costs. There are indeed cost are borne by participation in commercial society, but these costs are not losses.

Someone who is real loses out of commerce is someone whose life would be better if she had never been part of a society in which commerce takes place. In light of these job losses, if the worker whose job is being destroyed by imports would have had a better life if she had lived in a country that did not experience international trade, this worker could rightly be described as one of the losers of the trade. But if this person’s life, even though she has lost her job, is overall better than she would have experienced had she lived in a country with no foreign trade, and defines her as one of the trade interests losers does not make any sense. Living in a country whose economy is connected to the global economy means that her access to goods and services – and probably to other jobs – is almost certainly much greater than that access would be if her country never had commercial contact with foreigners had .

It may be true that if the specific imports that destroyed her job had never been allowed into the country, she would have been better off than if the imports had been allowed. But if, as is almost certainly the case, her life in general is like this. enriched by trade and that her life, on the whole – even taking into account her job loss – is better than it would have been if her country had been autarkic, then she is not a loser from trade.

One reason why innovative, commercial free markets produce such an abundance of material goods and services for ordinary people is that consumers, not producers, are in control. A fundamental rule of a market economy is that consumption is an end and production is a means to achieve this end. Anyone who wants to enjoy the (broad) benefits of a market economy must agree to this rule. But applying this rule comes at a cost, including the risk of having to adapt to consumer demands in your role as a producer.

The worker in a market economy who loses her job due to imports – or due to labor-saving technology, or simply due to changes in consumer tastes – pays the cost of admission and participation in this economy. Naturally, this employee would rather not pay these costs. But all benefits in our valley of perpetual scarcity come at a cost. Paying these specific costs is no more a loss than, say, paying my monthly mortgage bill: I would prefer to be relieved of the obligation to make this payment. But I am still very happy that I had the opportunity to pay these monthly costs, otherwise no one would have lent me money to buy my house.

My monthly mortgage payments are not losses; they are costs incurred for the greater benefit of borrowing money to purchase a home. Likewise, a worker whose specific job is destroyed by economic changes suffers no loss; that worker instead pays the costs of participating in an economy that promises a material abundance unmatched by any other form of economy. This worker, even though she has lost a good job, is still much better off in a trade economy than if her economy were cut off from the rest of the world.

Donald Boudreaux is a professor of economics at George Mason University. He blogs at Café Hayek (www.cafehayek.com).