The Evidence-Based Case for Free Trade

Last November, I shared a one-minute video from Freedom Partners on the economics of trade.

Here’s a full-length (but still only four minutes) treatment of the issue from the Center for Freedom and Prosperity.

The first part of the video is a quick glimpse at some of the academic evidence for open trade, and I hope it helps make the case against protectionism.

I then cite some country-specific examples, including how Herbert Hoover’s protectionism contributed to the economic misery of the Great Depression.

Argentina is another bad example mentioned in the video. It used to be one of the world’s richest countries, but it plummeted in the rankings in part because of its protectionist policy of “import substitution.”

The video also mentions the examples of China and India. Since I think this point is especially compelling, I want to take this opportunity to briefly elaborate on my comments in the video.

First, let’s establish that both nations did liberalize trade. Here’s a chart from Economic Freedom of the World, and you can see that there was dramatic liberalization starting about 1990.

Both nations are still a long way from total free trade (Singapore and Hong Kong, for instance, respectively get scores of 9.29 and 9.32), but it goes without saying that there was considerable liberalization in China and India.

And how did that work out?

Trade liberalization was a slam-dunk success. Based on data from the World Bank, here’s a look at how China and India started converging with the United States after opening to the world economy.

To be sure, both nations still have a long way to go. And it’s highly unlikely that either nation will ever fully converge to American living standards unless there is a lot more pro-market reform. Not just in trade, but all facets of economic policy.

But as I mentioned in the video, the reforms that already have occurred – particularly trade liberalization – have contributed to huge reductions in poverty in China and India.

Given all this evidence, I’ll close with a version of my two-question challenge. Can anybody identify a nation that has prospered by moving to protectionism (h/t: the USA in the 1800s is not a good answer) or a nation that has suffered because of trade liberalization?