Spot the Fallacies, Free Trade Edition

From, in response to Obama’s claim that international trade isn’t always fair:

Here we see the view, commonly held by the media and non-economists in our universities, that international trade is a competition, analogous to sports or military competition (sometimes, “trade competition” is compared to the Cold War). If the playing field is not level, then the trade is not fair. Economists, and this view is not limited to Austrians, understand that international trade is the fruit of cooperation, not competition. America and China are not trade competitors. Paul Krugman thoroughly demolishes this fallacy in “The Illusion of Conflict in International Trade” (reprinted in Krugman’s Pop Internationalism). Krugman explains that in international trade “it is the illusion of economic conflict, which bears virtually no resemblance to the reality, that poses the real threat.”

There are two main fallacies in this paragraph. The first is that of a false dichotomy. The second is the blatant ignorance of domestic economic policy as it relates to trade policy.

Regarding the former, it is wholly fallacious to say that trade is either analogous to competition or to cooperation. The truth is that there are elements of both. An automobile manufacturer, for example, must cooperate with its suppliers, distributors, and customers. It must also compete against other automotive manufacturers, as well as any company that manufactures substitute goods. Both comparisons can be correct, depending on how they’re applied, and it is thus fallacious to claim that trade is comparable to one or the other when it can be comparable to both.

Regarding the latter, it is quite fallacious to ignore reality when discussing policy. The fact of the matter is the US economy is quite hindered by regulations in ways that many foreign countries are not. It is not at all fair or free to allow foreign companies to compete with domestic companies when domestic companies have been hamstrung by the federal government. I’ve written extensively on this before, so I will not repeat myself here.<

In all, the case for free trade is often predicated on focusing on theory at the expense of reality, and building arguments on obvious fallacies. If this is the best free-traders have to offer, in the way of argumentation, perhaps they should reconsider their position.

3 comments to Spot the Fallacies, Free Trade Edition

  • Actually trade is 100% cooperation. Companies may compete against one another for the opportunity to trade with particular trading partners, but the actual trade itself does not involve competition unless you include negotiation between traders in the definition of competition. Both parties to the trade must agree to the terms of the trade. In other words, they must both feel that they will be better off after the trade than before, otherwise it would not take place.

    You are right, however, that both cooperation and competition must be taken into consideration. Both can benefit the societies by spurring innovation, by reducing the cost of living through division of labor and comparative advantage, etc.

    I think the author does go too far in saying that China and America are not trade competitors. They are cooperators when they trade with each other, but competitors when they vie for contracts with others.

    I think the bigger fallacy with international trade, one with bigger negative ramifications, is the idea that countries trade. In reality, countries don’t trade. Only businesses and individuals in one country trade with businesses and individuals in another. The only thing that the governments can do is to make it more difficult by imposing artificial restrictions on the voluntary cooperation of the parties to transactions. The way for governments to help trade is to quit interfering, even if they call that interference “help”.

  • If our frame of reference is the “US economy,” wouldn’t it behoove interventionists to explain how a policy of mitigating how the “US economy” utilizes its resources, including restricting the circumstances under which those resources can be exchanged, would benefit the welfare of the “US economy” on net and not just politically privileged constituents?

  • Justin, it wouldn’t behoove them at all, because then they would have to tell the truth.

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