One of the hardest ideas for non-economists to get is the idea that a government's unilateral elimination of trade barriers create a net benefit for the people in the country whose government makes the unilateral move. I pointed this out in a "What Clinton and Gore Don't Say,"Fortune, May 1, 2000.
Here's an excerpt:
Economists have shown that because consumers gain from exchange, a country is actually better off dropping its trade barriers even if other governments keep theirs. But unilateral free trade, though an economic winner, is often a political loser. The consumers' gain doesn't come across more clearly in reports of trade negotiations because it is spread across millions of people. The losses from opening trade, however, are often shared by a small number of companies with a few thousand shareholders and workers. They hire lobbyists and make hefty campaign contributions based solely on a candidate's views on trade barriers.
Therefore, to pass free-trade legislation, politicians have to woo powerful organized groups that favor it. How do they do it? They find low-cost domestic producers that, because of other countries' trade barriers, miss out on the chance to compete in big, lucrative markets. Then they hold meetings at which, say, U.S. farmers lobby for other countries to cut their barriers to U.S. farm exports. In return, the U.S. negotiators cut U.S. barriers to, say, imports of shoes and clothing. (Those are two of the imports against which the U.S. has the biggest barriers.) So the domestic exporters are left to voice consumer concerns. Unfortunately, they don't.
In the negotiation process, the U.S. treats cuts in its trade restrictions as concessions rather than as the benefits they are. That's why the consumers' gains get lost in the shuffle. Economists like U.S. Treasury Secretary Lawrence Summers understand that. But U.S. Trade Negotiator Charlene Barshefsky and Vice President Gore? I'm not so sure.
I'm not so sure Senator Marco Rubio (R-Florida) gets it either. Look at what he said in a recent interview. Now, if by "in exchange for nothing," he means that the U.S. government gets no reduction of trade barriers in return, then I get it. But if he means that Americans get nothing, he's wrong. Does he understand consumers' gains from eliminating trade restrictions? As with Barshefsky and Gore, I'm not so sure.