Often assumed to be a good thing but also sometimes get a bad reputation (e.g. protests at trade agreement negotiations).
Protestors are speaking up for the rights of those, individuals or groups who have been marginalized or been hurt by trade, so when we talk of free trade we should not assume that it’s necessarily always positive for everyone, even as we know there is a correlation between rise in GDP and rise in trade.
Mercantilism was a very powerful philosophy for many centuries up to the 1700s; many countries, nations, societies conducted their policies based on it.
Mercantilism believed that there was a fixed amount of wealth in the world, so to get ahead, a society needed to get more of whatever natural resource was valuable (and was behind the creation of colonies), and the more one got, processed and sold to others, the richer the society.
Countries wanted to export more than they import, and there were winners and losers.
It took time, but eventually society became aware of a new philosophy, which was the idea that the pie could actually get bigger; it could grow in size because it saw trade as a positive thing, and if the pie gets bigger then there are more slices to go around and we can all benefit.
The idea that trade could be beneficial took time to take root and it was through the work of economists like Adam Smith and David Ricardo, who showed numerically how countries could benefit from trade.
In the next two parts, we will go through their examples.
Their ideas are the forerunners of the free trade and positive view of trade between nations that we’re experiencing today in the modern era.
It was only when Adam Smith and David Ricardo came out with some very powerful quantifiable examples that the world started to shift its opinion about the benefits from trade.
Explanation of these examples using a case study/example of Mexico and India producing motorcycles and smart phones, where one country has an advantage in producing one of the products and the other has an advantage in the other (the idea of absolute advantage).
Demonstrated the win-win gains from trade.
Key point: no one needs to gain at the expense of others, and they can use their individual advantages to reap the benefits from trading with each other.
Further explanation using the same example as before, the difference being that one country is better than the other in making both the smartphones and the motorcycles.
Again, despite one country having an absolute advantage in both products, there are still gains in specialisation and trade, still a win-win (the idea of comparative advantage).
Mercantilism meant that countries wanted to export more than they import; but if you look at the modern world today, some countries have a trade deficit, and some have a surplus, but many of the former also have very high GDPs per capita.
That said, different parts of society do experience different benefits e.g. if a particular good no longer produced in a society because it’s produced in another country, people or individuals or companies that made that product previously would clearly be short-term losers.
Developing and emerging countries have benefitted from their participation in global and freer trade.
As to what countries are producing and specializing in, it’s a very complex picture. A country could be exporting and importing from many of the same countries, and could import a product but also make it itself.
When entities like companies, or trade unions or labor unions, lobby their governments for protection from trade so that employees do not have to lose their jobs, the benefits from trade are not gained.
