Debate:Does "free trade" increase wealth rather than simply redistribute it?

Post Your Thoughts

yes...

Free trade stimulates the economy. A better economy increases demand for a wider variety of goods. In order to meet demand, people will labor to produce more goods. The result of this labor is an increase of wealth; Labor + raw materials = more valuble product. Ben

From a global perspective, free trade certainly increases the overall amount of wealth in the economy. By eliminating barriers to trade, governments encourage members of the economy to specialize in doing whatever they do best and then trading to fulfill their wants and needs. When trade is efficient, a firm can focus its production capability entirely on the area in which it has a comparative advantage. Thus, opportunity costs are minimized and each firm is as productive as possible. Production will be greater, and production costs will be lower than they were without free trade. However, it is crucial to realize that this analysis is from a global rather than national point of view. Free trade certainly does redistribute wealth, and it is quite possible that free trade will benefit the economy as a whole, but harm a specific nation by redistributing wealth away from that nation. Free trade can put industrialized nations such as the United States at a disadvantage relative to less developed nations. Businesses in the United States are heavily restricted by health, labor, and environmental regulations. This often makes production in less developed nations less expensive than production in the US. While free trade is optimal from a worldwide perspective, it may be very dismal from our point of view. EWJ

no...

Free trade is mostly the redistribution of forms of wealth from buyer to seller. The sellers, for example, receive the primary benefit of compensation for their capital and labor. The buyer must perceive a benefit also to induce him to enter into the transaction. But that relative benefit can be, and often is, very small. A one-cent reduction in price brought by increased "free trade" can be the total amount of the benefit to the buyer.

What the seller does with his large benefit can end up cost that buyer more than one cent. The restribution of wealth through free trade to an enemy of the United States can result in the money being spent on missiles directed at the United States, which then has to spend money (perhaps more than one cent per buyer) in defending against those missiles.

Bottom line: Free trade primary redistributes wealth rather than creating it.

Mr. Schlafly