discussion: free trade vs. protectionism


  • Milton Friedman, a Nobel Prize winner economist and an advocate of free trade answers questions about the effect of free trade on employment in the following 6-minute video. Please watch the following and reflect on the employment argument for protectionism. Should we protect certain industries against foreign competition through tariffs and quotas to protect employment in these areas?

This video is from the 1970’s but we have the exact same argument in our current political and economic environment. We see the steel example in the video. Can you name one or two examples of protectionist policies in the US? Who will win, who will lose as a result of these new tariffs?

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  • Traditional trade theories assume that factors of production are freely mobile between industries and geographic regions within the same country. Therefore, workers who are displaced due to foreign competition can switch to other sectors in a different part of the country after a brief transition without any cost. In reality, labor markets tend to be sticky. Workers do not move even when labor market conditions would suggest they should and they are worse off as others who benefit from international trade are better off. 

International trade increases total surplus and therefore increases efficiency, but it will be at the cost of equality. What is the role of government in helping people who lose as a result of foreign trade?