protectionism costs

Say No to Walls

Donald Trump
In trade we trust. Can you hear me? Source: Picture alliance [M]

Once again, politicians of all stripes are questioning the point of free trade. In France’s presidential election, 10 of the 11 candidates called for “patriotisme économique.” In other words: “French should buy French.” The American president has said essentially the same thing: “America First” means “buy American products and create jobs in our country.”

When it comes to making cars, the opposite is actually true: Protectionism can prevent investment and technological progress. It therefore poses a threat to livelihoods and is even life-threatening for many people.

It’s been 200 years since the British political economist David Ricardo formulated the theory of comparative advantage upon which the benefits of free trade are founded, building on Adam Smith’s principle of absolute advantage a century earlier. Ricardo held that specialization and division of labor allowed foreign trade to thrive, resulting in increased prosperity for all the participating trading partners.

And 200 years later, he is still right. It makes more economic sense for two countries to diversify the production of goods: One country is better at growing wheat, the other at weaving cloth. The countries exchange goods, protecting resources, and in both countries, people are fed and clothed efficiently and effectively. If each country fended for itself instead, there would be less wealth, fewer jobs and more resources and time would be needed.

It is shocking that these facts are still questioned, after some 200 years over which free trade has been a success. Ever since Ricardo, the poverty rate has dropped steadily worldwide. Now it is less by half what it was back then or, depending on the calculation, even just a quarter of it. And that’s with seven times as many people on the planet.

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