Is Free Trade Always the Right Policy?

Abstract

The large merchandise trade deficit in the United States has caused great worries in [the USA] regarding the loss of jobs implied in this deficit as compared to the employment opportunities that would occur with a more balanced trade position. Accordingly, the principle of ‘free trade’ appears to be threatened by demand for tariff protectionism. Yet, in my view, the problem is typically not being discussed in the correct analytical framework in many public forums and in the media. Until we get our analysis right it is unlikely that we can get our policy right. I therefore thank the Committee for giving me this opportunity to set the matter straight and to indicate why I believe the Trade Emergency and Export Promotion Act is an important positive step.

Submission to the US Congress Joint Economic Committee, 18 September 1985.