The protectionism boogeyman | Prestowitz

3 Feb

A second, more fundamental question, is why anyone thinks that free trade and globalization are always win-win. In the first place, free trade and globalization are not the same thing. Globalization involves capital flows, direct foreign investment, and technology transfers that are not usually involved in plain old trade transactions. Economic theory holds that free trade is win-win, but only under certain restrictive assumptions such as that all markets are perfectly competitive, that exchange rates are fixed, that there is full utilization of resources, that there are no economies of scale, and that there are no cross border flows of capital, technology, or labor. Obviously, those assumptions hold only in very few instances in modern trade.

Turning to globalization, there is even less of a theoretical basis for arguing that it is always a win-win proposition, and that argument is usually made without making a full accounting of the costs of globalization such as those affecting the environment, dislocation of workers, capital investment losses, and skills learning. The truth is that globalization may or may not be a win-win proposition depending on a wide variety of circumstances.

via The protectionism boogeyman | Prestowitz.

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