Free Trade then and Now, or Still Manchester United

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Liberal thinkers from the Enlightenment era onwards supported international free trade, on grounds that it promoted prosperity, peace, and mutual knowledge and tolerance among peoples. The argument was powerful and not merely theoretical. The Italian trading cities, the Dutch Golden Age, England in the free trade era, all were conspicuous for prosperity and tolerance in their time. Similarly, the US Constitution created a nationwide free-trading common market as the foundation for American economic success, and for American political and social solidarity as well. The association of free trade with greater prosperity has surely been demonstrated across the globe and through time: it is difficult or impossible to think of counter-examples.

There has always been, however, a “complex critique” of free markets – and hence of free trade – “that has united traditionalist and revolutionary opponents of capitalism”. The neo-feudalist and radical critiques are often joined by economic interests who stand to lose from free trade, typically by losing their monopoly or semi-monopoly position. In the nineteenth and twentieth centuries, however, the argument for free trade often carried the day: intellectually if not always practically.

The question is whether the nineteenth and twentieth century case for international free trade has lost some or all of its force; or even if it hasn’t, whether other considerations, such as claims for “social justice”, now outweigh it.

It is difficult to see how support for free trade based on its promoting overall prosperity has lost any of its force. Countries with freer trade are generally more prosperous than states with more restrictive trade policies. Moreover freer-trading societies tend to be more tolerant – religiously, intellectually, and in other ways – than economically more closed societies. Trade creates a practical incentive for travel, for acquiring knowledge about unfamiliar people and places, and for fostering relationships – at a minimum, actual or potential trading relationships – regardless of human differences.

Today’s opposition to free trade is often couched, not as outright opposition to commerce, but as a call for more regulation: of wages, hours, and conditions for foreign workers or in behalf of environmental concerns. Two considerations, however, raise warnings about ambitious regulation of world trade, especially in the interests of social justice, even by comparison to regulation of domestic markets.

The first, in the spirit of Hayek, is the problem of knowledge. Difficult as it may be for any one authority to know how best to allocate resources within a single country or society, it is all the more difficult to know what rules or even what principles would be best in many different countries and societies around the world.

The second cause for wariness is that barriers in the name of international social justice are not open to democratic correction in the way that domestic over-regulation might be. When domestic markets are subjected to regulation, the losers as well as the winners are (usually) voters. But if regulations of foreign working conditions actually damage the interests of foreign workers, or if environmentalist restrictions turn out to bring on environmental damage or disproportionate cost to poor farmers, those workers and farmers have no effective way of objecting, and often the global law-givers will never learn of unintended consequences in far-off lands.

This lack of democratic answerability promotes deception, or self-deception, about the nature of the restrictions. A trade barrier can be put forward in the name of social justice for foreign workers or peasants, but the real effect (and often the real motive) is to insulate a domestic industry or interest against foreign competition. The foreign workers or peasants who lose out on opportunity and a chance for better lives are in no position to make their objections known.

Support for free trade does not preclude reasonable regulation: surely against force and fraud, perhaps for other social interests as well. But knowledge costs, and diminished democratic checks, make international trade especially vulnerable to stifling over-regulation, whether in behalf of special interests or in pursuit of ethical illusions. The insights of Enlightenment thinkers – on the symbiosis of free trade with prosperity, tolerance, and peace; and against the seductions of protectionism and autarky – still have great force, in our own day as in theirs.