Free trade is good, but it’s not a panacea. That’s what Samuel Gregg argues in a new article for Fusion.
Free-trade supporters sometimes make utopian arguments that, like all utopian arguments, fall apart when they confront reality. Some free-trade proponents have seen trade as a means to world peace. Others believe free trade will mean the abolition of national borders, as the entire human race enters into one commonwealth of commerce. A milder form of this argument is the belief that economic liberalization necessarily means political liberalization, and that more countries would become democracies on account of free trade.
Free trade is good, but it’s not a panacea. That’s what Samuel Gregg argues in a new article for Fusion. And Adam Smith agrees with him.
Gregg contrasts Smith’s views with those of Richard Cobden, the primary British proponent of free trade in the 19th century. Cobden used the more utopian style of argument and said free trade would prevent wars and bring nations together. This proved incorrect, especially when World War I broke out between European powers that had been relatively integrated economically.
Smith never promised world peace. Gregg writes:
In the first place, Smith was skeptical that moral sympathy extended much beyond one’s nation. Smith did not argue that our concern for others simply stopped at the border. Smith did, however, believe that our sympathy for others became considerably weaker once it moved beyond national boundaries.
Smith’s thought on the limits of benevolence was the theme of Dan Klein and Erik Matson’s essay for the Adam Smith 300 series in January. People naturally have more sympathy for their families than their towns, their towns than their regions, their regions than their countries, and their countries than the world. Benevolence is more effective where sympathy is stronger. Smith’s argument is a forerunner to Hayek’s knowledge problem.
“Smith certainly held that increased trade between nations free of mercantilist restrictions would tend to ameliorate relations between them,” Gregg writes. But that’s a far cry from world peace. Gregg continues:
On the contrary, there were circumstances where, he thought, trade liberalization might exacerbate the potential for war. In The Wealth of Nations, Smith suggested that the growth in a nation’s economic resources arising from an increasingly efficient “domestick industry, from the annual revenue arising from its lands, labour, and consumable stock” would permit that country to support “fleets and armies in distant countries” and “maintain foreign wars there.”
That’s almost a perfect prediction of World War I, when increased national wealth and technical know-how from industrialization allowed for the production of weapons on a greater scale than ever before. “Smith agreed with David Hume that conflict was part of the human condition,” Gregg writes. “He did not think that international affairs could be inoculated from such truths.”
Instead of the utopian arguments others may make, Gregg offers a more realistic argument for free trade:
Trade liberalization may not lead inexorably to universal peace. But it does promote very particular and tangible goods for countries, not the least among which is the fact that the wealthier a country becomes, the stronger and more influential its place in world affairs. Protectionism, by contrast, gradually weakens a country by 1) rendering it less competitive; 2) diminishing the pace and scale of economic growth; 3) encouraging legislators and citizens to be less attentive to the willingness of other people in far-off lands to work harder or be more entrepreneurial than them; and 4) making its citizens more subject to the whims of domestic special interests seeking privileges for which everyone else pays.
One of the things that makes the United States a superpower is that everyone wants to do business with Americans. This in turn benefits American consumers, who get access to better and more affordable products, and American workers, whose products can then be sold in global markets as well. Isolating ourselves from those markets would undercut one of our greatest sources of national strength. There’s no reason to make fanciful assertions about world peace to justify trade liberalization. Gregg makes the realistic case well.