I’ve been corresponding with a reader (R. Nelson) who says he once was a fervent free trader but has now lost the faith. Specifically, he claims that the US, Japan, Germany, and (if memory serves) other countries all grew rich behind protectionist walls, while Great Britain (he claims) lost its preeminence due to free trade.Of course, I’ve tried arguing on theoretical grounds. I think the best such argument is to ask: How long must US consumers be taxed in order to give certain domestic industries time to become competitive? 5 years? 50 years? 200 years?
If the I.I. advocate concedes that some “advanced” industries are best left to foreign producers, because it would take too long for domestic producers to catch up, then he’s been pushed into saying his personal views on intertemporal tradeoffs trump the market’s. After all, the interest rate determines whether a costly switch to a new machine (that will save money down the road) is worthwhile. Or consider that many startup businesses don’t earn money in the first few years.
My correspondent asked if I really thought the US should’ve continued supplying raw materials rather than erecting tariffs and becoming a manudacturer in its own right. But this misconceives the argument for comparative advantage. Those numbers that always accompany the standard examples can change over time, and the quickest way to make them go up is to maximize income (through free trade) and invest. Imagine that a teenager says he wants to have a good job and so he will be his own physician. His dad says that this is silly; he should specialize in serving fast food and ise the money to hire a doctor. This lecture doesn’t condemn the lad to Burger King; he can still go to medical school and eventually become a doctor.
Anyway, can anyone comment on the historical case? The States themselves obviously “matured” with internal free trade, and I always thought Britain flourished after repealing the Corn Laws. But I don’t have any specific references…