The Competitive Enterprise Institute is not the only group making a principled case for free trade. The UK-based Initiative for Free Trade, headed by Member of European Parliament Daniel Hannan, in conjunction with the Cato Institute’s Daniel Ikenson and Simon Lester, have released a draft for an ideal UK-U.S. trade agreement. Nine other groups contributed to the draft agreement, and CEI’s Iain Murray is a contributing author. Iain also wrote a column about the effort for National Review.
Regular readers will recall that I have a low opinion of Trump economic advisor Peter Navarro’s hawkish trade philosophy—I wrote about his policies and ideology here and here, and reviewed his book “Death by China.” In the cover story to the new issue of Cato’s Regulation magazine, Pierre Lemieux takes an in-depth look at “Peter Navarro’s Conversion,” from his four unsuccessful bids for public office, to his 1984 book-length defense of free trade, to his days as an environmental activist, to his current anti-China animus and job in the Trump administration. It’s worth a read.
For a lighter take that is just as devastating, HBO’s John Oliver recently did a segment on Navarro that is surprisingly economically literate. I could pick a few nits here and there with it about trade deficits, but overall its analysis is excellent. Oliver and his staff deserve credit for producing an excellent piece of economic education.
The Mercatus Center recently published an excellent trade primer by Lemieux, “What’s Wrong with Protectionism?: Answering Common Objections to Free Trade.” It contains probably the clearest explanation of comparative advantage I’ve read, and that alone is worth the price of admission. Countries with an absolute advantage in many industries, such as the U.S., should specialize in what they’re “more better” at, such as capital-intensive technology, aircraft, and services. Countries with an absolute disadvantage in productivity, such as China or Bangladesh, should specialize in what they’re “less worse” at—mostly labor-intensive assembly and low-skilled manufacturing.
This kind of specialization reduces opportunity costs. If the U.S. had a massive garment industry, for example, it would have to sacrifice untold billions of dollars of value it could create elsewhere. It can create more value by specializing in those high-value-added sectors, and leaving the rest to others, even if those others are less productive in absolute terms. The rest of the book is just as good, especially the chapters on manufacturing and the trade deficit. Highly recommended, especially for people new to trade policy.