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The Whole Point Of Free Trade Is That It’s Not Fair

Posted February 12, 2018

Under Economic Issues, International Trade Issues

(Jeffrey Dorfman – Forbes)

Last week, the Trump Administration announced tariffs on imported solar panels and washing machines. Both actions will lead to higher prices for consumers. In the solar panel case, the tariff will almost certainly cost the U.S. far more jobs than are saved, as explained below. These actions, guaranteed to hurt either some or most Americans in order to reward a few (the workers and shareholders of the protected companies), are legally justified by findings these industries are being harmed by unfair foreign competition. Yet, the entire point of trade is that the process is not fair. It is the trade which looks the most unfair that creates the most benefits because the potential gains are the largest.

One of the most basic lessons of economics is the theory of absolute and comparative advantage. This theory holds that when companies, regions, or countries specialize in the types of production they are relatively better at it allows the parties to consume more of all products. In the context of international trade, allowing countries to specialize in different products and services makes all countries participating in trade better off. Click here to read more.