Reasons for free trade: a common sense approach
Good afternoon… First, I’d like to than the organizing committee of this panel for their most kind invitation… thanks María Elena Arévalo and Lucy Arroyo… It’s good to be a member of a panel with such distinguished participants as Jorge Wise, Daniel T, Crocker, Sandeep K, Paul, and of course my old friend Andrés Franco.
Globalization has many meanings and there is not enough consensus as to what exactly globalization means… however, one thing is certain, when we talk about globalization free trade is accepted as one of its essential parts. And this is precisely what I’d like to talk, making the case for free trade using a common sense approach.
So let me start saying what free trade isn’t… Free trade is not the culprit of our languishing economic performance in Mexico, quite the opposite… and it is not a magic wand that will remedy poverty in a few weeks or months as some have expected. Put in the right perspective, free trade is one of the items in a list of convenient reforms to be implemented in order to achieve prosperity, like financial discipline in government, tax-reform and others.
Having said that I’d like to make the case for free trade going over a brief list of common sense reasons, based essentially on human nature…
• First, it may sound surprising to some, specially the old-fashioned and othodox socialists, but free trade is not a zero-sum game. Everybody wins with free trade, despite a litany of fears made by some. Hard evidence supports this. This is very simple to understand. Free trade is just like trade between Saltillo and Monterrey… we export beer or some other goods to Saltillo and in turn we buy some items from them.
With free trade we just change locations. Instead of Saltillo, we sell something to, say, Houston or Madrid and we buy something from them. Moreover, in reality, it is NOT commerce between two or more cities, nor among two or more nations. It is a series of voluntary exchanges between persons, very concrete and specific persons… and voluntary exchanges benefit both parties. Free trade is about people, not governments. This is Economy 101. And it teaches us that national self-sufficiency is impossible.
• Second, there is solid economic reasoning behind free trade. We are all familiar with concepts such as absolute advantage, and relative advantage. There’s also, economies of scale and the dynamic aspects of economics. My point here is a rather simple one. Economic analysis shows very clearly that free trade in justified.
Everybody can be a part of it, including very poor countries, and everybody wins. Moreover, absolute and relative advantages may shift, changing what may look initially as a static situation.
• Thirdly, no matter how we look at history, free trade appears as the natural state of things. Commerce was born when the first exchange was made, surely in prehistoric times and continues to be an instinctive inclination of humans. Just think about Marco Polo, the city markets in ancient Mexico or the Olmec merchants importing and exporting. Adam Smith said that commerce is an instinctive trait of all humans. And he was right. It is part of a division of labor, and a cause for prosperity.
Of course, along the way, some people thought the opposite and built obstacles to free trade. They are called national borders and customs and bureaucracy… and were justified with odd theories, like mercantilism and protectionism and import substitution. Just think about Bastiat’s funny story about the candle manufacturers complaining to the French government about an unfair competition from a foreigner with a much lower price for light… the sun.
• My fourth reason is philosophical. It has to do with our idea of human nature. If we believe that human nature includes freedom and deserves liberties, such as self-government, freedom of the press and religious freedom… then it would be very hard to oppose economic freedom. And that is precisely what free trade is, the liberty of human beings to exchange goods among themselves. In other words, those who are against free trade are repelling part of the essence of humanity.
What in reality they are saying is that the foreign students here at the TEC should no be here, that they should have stayed in their own countries not buying a piece of their education from a alien provider. And that local students shouldn’t go to study abroad.
• My fifth and final point has to do with reality. It is a fact that governments have over the years built all sorts of obstacles to free trade. And this changes the focus of all proponents of free trade. Their case is doubly difficult. They not only have to persuade people about the advantages of free trade, but the also have to find ways to dismantle the obstacles it faces.
This is the hardest part, because it will hurt the people and the institutions that benefit from the lack of free trade: bureaucrats, companies, labor unions and individuals. He who makes a profit thanks to the lack of free trade will put up a strong opposition, you can count on that. It is human nature that they react that way.
So, my case for free trade was built on a simple common approach: free trade makes sense, a lot more sense than its opposite. Free trade is a part of human freedom and consistent with economic theory. This coincidence may look surprising to some, but it isn’t. What in economic terms produces prosperity has to be compatible and congenial with human nature.
And that is the reason for viewing free trade as part of the items in a list of things to be implemented in order to achieve prosperity. By itself, standing alone, free trade will do very little. Is has to be part of a society where there is little crime, where there is development of human capital, where there is monetary stability and other requisites that have the same objective: promote and respect human nature and its freedom. Is free trade a threat? Quite the opposite.