Debunking Protectionist Myths: Free Trade, the Developing World, and Prosperity

More than 170 years ago, Frederic Bastiat noted in his masterly work Economic Sophisms that the “opposition to free trade rests upon errors, or, if you prefer, upon half-truths.”1 Ever since Adam Smith successfully replaced mercantilist orthodoxy with free trade doctrine in his celebrated book The Wealth of Nations, free trade critics have repeatedly challenged the doctrine, offering half-truths to bolster their case. In each instance, free trade advocates have successfully exposed the falsehood of arguments made by critics. Although free trade has gained increasing acceptance among policymakers over time, challenges to it have remained omnipresent. The latest of these challenges has manifested itself in increased tariffs on steel and aluminum in the United States and on a number of selected products in India. At the heart of these tariff hikes has been the belief that through targeted protection and industrial policy, governments can produce outcomes that are superior to those that free trade and competition would produce.2 Intellectual inspiration for this belief in recent decades has come from writings of a group of influential scholars who have interpreted the experiences of the highly successful East Asian “tiger” economies — Hong Kong, Singapore, South Korea, and Taiwan — during the early decades following the Second World War and of China during more recent decades as being the result of selective protection and industrial targeting. Systematic evidence, however, demonstrates that free trade rather than selective protection and industrial policy must be credited with propelling these economies to miracle-level growth. Just as Bastiat observed, the case made by free trade critics in favor of industrial policy and selective protection is based on half-truths. Contrary to the assertions by these critics, a logical case for infant industry protection does not exist. Moreover, compelling empirical evidence linking trade openness causally to higher per capita incomes is now available.