Introduction to Trade

To listen to the lecture, click here.

Old topic, with current issues (will have separate lectures on these)

Common biases against trade:

  1. confusing trade with sharing ("fair" trade)
  2. anti-foreign bias (tribal origins)

  3. make-work bias (fears of loss of status)

History of Free Trade Theory

Adam Smith

David Ricardo

Workers required per unit of output


Trade as a Technology

Analogy with technological innovation

Illustrations of Comparative Advantage

Alan Blinder: "many of us have our shirts laundered at professional cleaners rather than wash and iron them ourselves. Anyone who advised us to "protect" ourselves from the 'unfair competition' of low-paid laundry workers by doing our own wash would be thought looney."

David Friedman: "There are two ways we can produce automobiles. We can build them in Detroit or we can grow them in Iowa. Everyone knows how we build automobiles. To grow automobiles, we first grow the raw material from which they are made--wheat. We put wheat on ships and send the ships out into the Pacific. They come back with Hondas on them."

Arnold Kling: Derek Jeter might be a better first baseman than Jason Giambi. But Giambi has a comparative advantage at first base.

Arguments against free trade

Winners and losers

"lost jobs"

"driving down wages"

Main Lessons

The principle of comparative advantage

Trade is a form of technological efficiency

Applies across borders