We’re approaching an important but unremarked bicentenary. It was in 1817 that David Ricardo, a British economist of Portuguese-Jewish heritage, came up with the theory of comparative advantage. He showed that it always makes sense for two countries to trade freely with one another, even when one of them is vastly more efficient than the other.
His idea has been called the only concept in the whole of the social sciences that is both surprising and true. Two hundred years on, we still struggle to get our heads around it.
If you want to see why it must always logically work, Google “comparative advantage” and watch one of the videos that explains it. To be honest, though, if the idea is new to you, you may need to watch it a couple of times before you believe it. I certainly did. The whole notion feels so downright implausible.
One way to think of it is this: Suppose you buy household goods from China. If China suddenly gets much more efficient at producing them, their price will fall, meaning that you can sustain the same standard of living while working shorter hours.
You can then use those hours to do something else. And even if that something else is something that can be done more efficiently in China, you’ll still be better off. The Chinese are pulling further ahead of you, but you still benefit.
Or look at it another way. Winston Churchill was a great bricklayer: He loved building walls at his country home in Kent. So should be have become a professional builder? No. He had a comparative advantage as a writer and politician. It made sense for him to contract out building jobs to others, even if he could have done a better job than them, because the best use of his time was writing.
Comparative advantage runs up against millions of years of intuition encoded in our genome. We retain the instincts of hunter-gatherers: We want to provide against famine, to be self-sufficient. And that’s why both Donald Trump and Hillary Clinton are able to win votes by railing against free-trade deals.
There is a further political difficulty: Unhindered trade brings dispersed gains but concentrated costs. Suppose that the United States were to admit Chinese steel without quotas, tariffs or restrictions. The steel might be artificially cheap; Chinese mills benefit from free land, subsidized energy and other perks.
Importing the metal, even if it is produced at below cost price, will make America richer. If China dumps its steel, American consumers are in effect getting a grant from Chinese taxpayers. American factories benefit from lower costs. Car manufacturers take on more employees. Costs fall. Almost everyone is a bit better off.
The trouble is that they won’t attribute their good fortune to free trade with China. Newly unemployed steelworkers in Pennsylvania, on the other hand, will know exactly whom to blame, and will vote accordingly. That’s why politicians hang back from endorsing free trade, even when they know that it’s in the national interest — which I’m pretty sure both Trump and Clinton privately do.
Is there any way to win the argument? Only one: Once you go ahead and unbar your markets, the benefits become clear. Hong Kong and Singapore are perhaps the outstanding examples of territories that unconditionally opened their economies. They don’t care if the rice they purchase from Thailand or Japan or, indeed, the United States is subsidized.
If American taxpayers want to pay for Hong Kongers’ breakfasts, runs the thinking, let them. Result? Two sultry islands which, in the 1950s, were among the poorest places in Asia, are now among the wealthiest city-states on Earth.
When it leaves the relatively protectionist European Union at the beginning of 2019, Britain will have an opportunity to pursue more open trade policies. One of the things we’ll be able to do is buy cheaper food, textiles and commodities from developing countries, thus boosting them as well as raising living standards for the poorest people at home.
And here’s another thing we might want to look at: joining the North American Free Trade Agreement. At least, we’d like to join if you chaps haven’t brought it down by then. Come, America: Think of the moral case for free trade. It is the ultimate instrument of poverty alleviation, conflict resolution and social justice. Will none of your leaders stand up and say so?
Dan Hannan is a British Conservative MEP.
