Mr. B__:
Thank you for your email.
You think your professor is wrong when he argues (as you say) that “the justification for free trade requires that the losers be compensated when tariffs are cut.”
Yes, your professor is wrong. As I tried to show in a 2022 paper (“Should business ‘losers’ be compensated?: The economics of economic change should explore the losses and costs of welfare.”), this argument is the result of a fallacy.
While I would be honored if you would read my paper in its entirety, I will summarize an example here to illustrate the main point, that while free trade has value, it has no losers.
Free trade is a loser only when it is denied to someone what they are entitled to. But free trade does no such thing. An American consumer When buying an American-made automobile from GM in 2013, that consumer did not agree to buy all of his automobiles from GM in the future, so when that American bought a new car from GM in 2023. Non-American automakers rather than GM, that consumer does not take anything from GM that GM or its employees deserve.
When he sold the car to this consumer in 2013, GM can At the time of the sale, they asked the consumer to make a contractual commitment to purchase all future automobiles from GM. Future Automobile Purchase Options – Just some consideration from GM This consideration can take many forms, but in 2010 It may have a lower price on an automobile sold in 2013. This contract term reads in these lines. GM agrees to reduce the price of an automobile sold to Mr. or Mrs. Consumer today Mr. or Mrs. Consumer has agreed to buy all of his future automobiles from GM.
But of course GM doesn’t really want such a deal. When a person buys an automobile from American Auto, that person is not committing to buying future automobiles from that company. Henceforth, when an American buys a foreign-made car, American automakers lose nothing and must be compensated for this.
that by is not By including the aforementioned clause in the sales contract, GM was able to sell the car in 2013 for more than what it would have cost had the buyer agreed to fulfill this term. This higher price can be seen as GM’s ‘compensation’ for agreeing to play by the rules of the free market – these rules include the legal and moral right of consumers to spend their income in the peaceful way they choose.
Therefore, a policy that requires moral compensation is not free trade. It is protection. Unlike free trade, protectionism deprives people—especially those in their capacity as consumers—of their right to earn, their right to spend their income in the peaceful way they choose.
Conservationists only shout about free trade asking for ‘compensation’ of the losers because they are so delusional that they see the benefits of consumerism not to the consumers who earn the income, but instead to the greedy producers of political power. is it.
Intellectually, conservationists are losers.
best regard
Donald J. Boudreaux
Professor of Economics
And
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
