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Free Trade and Domestic Workers

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Published June 29, 2022

There are two main objections to free trade. The first is that freer trade results in some people losing their jobs or investments. This may be true in the short run but is almost always false in the long run. The second objection is that free trade only benefits the wealthy. In practice, more benefits tend to go low-income households by making what they consume more affordable.

Discussion Questions:

  1. What are the advantages of free trade? What are the disadvantages?
  2. Why are protectionist policies—quotas and tariffs—popular? Why are they growing more popular?

Additional Resources:

  • Read “Dispelling Two Objections to Free Trade,” by David Henderson. Available here.
  • Read and watch “Free Trade,” a Policy Insights edition on PolicyEd. Available here.
  • Watch “The Historical Benefits of Trade,” by Douglas Irwin. Available here.
View Transcript

People often oppose free trade because they believe it will hurt domestic workers. But what if we apply this argument to goods that are sold across state borders?

After all, in the United States, most trade is not across national borders but among the states. When a company moves a factory out of a state, the effect on its workers is the same regardless of whether the factory moves to another state or another country.

Imagine if your state tried to stop factories from moving by enacting tariffs on goods that cross state lines. Some workers might be temporarily better off if businesses decided to stay. But the harms to your state would be great. Consumers like you would have to pay higher prices and would have fewer goods to buy. And other states might respond by levying tariffs of their own, hurting workers and businesses in your state.

Luckily, the Constitution prohibits states from erecting trade restrictions against other states. The lack of restrictions among the states is a key ingredient to our vibrant economy that produces abundant opportunities for consumers and workers.

The same lesson applies across international borders. Whether it is between people within a city, state, country, or the world, the benefits of trade abound to all involved.