The Losers from Free Trade (and Donald Trump)

Thomas Frank writes in the Guardian that when Donald Trump “isn’t spewing insults, the Republican frontrunner is hammering home a powerful message about free trade and its victims”.

It’s a challenging point about a central aspect of what Frank calls “Econ 101”, but we understand as EC114, Introductory Macroeconomics: comparative advantage. The idea that all countries specialise in the things they are comparatively better at (rather than absolutely better at), and as a result we all do better. So Mexico produces air conditioning units, while America produces the designs for awesome Apple computers (made in China).

However, what does that mean for those who used to produce air conditioning units in America? Or those here in the UK who used to build ships?

As we pointed out in the lecture, free trade doesn’t mean all benefit. However, free trade does envisage that those displaced from industries that a country is not specialising in are able to move into those industries that a country is specialising in. So why hasn’t that happened in so many parts of the UK, and the US? Undoubtedly the article written by Frank could be applied here in the UK to the rhetoric of Nigel Farage and Ukip.

It’s tempting to say that we’ll find an answer at some point in the rest of the course, yet the reality is that depressed parts of the UK have been depressed for decades now, and things never seem to change – which suggests that the problem hasn’t really been solved as yet… or has it?

Frank concludes with a tirade against free trade but more: “Ill-considered trade deals and generous bank bailouts and guaranteed profits for insurance companies but no recovery for average people, ever – these policies have taken their toll.” To what extent have bank bailouts left us with a banking system unwilling to extend credit to firms willing to move into depressed areas of the country and create jobs?

Even if that’s true, however, most depressed areas of the UK have been depressed for longer than just the time since the Financial Crisis…