The Jobs Argument

Opponents of free trade often argue that trade with other countries destroys domestic jobs. In our example, free trade in steel would cause the price of steel to fall, reducing the quantity of steel produced in Isoland and thus reducing employment in the Isolandian steel industry. Some Isolandian steelworkers would lose their jobs.

Yet free trade creates jobs at the same time that it destroys them. When Iso-landians buy steel from other countries, those countries obtain the resources to buy other goods from Isoland. Isolandian workers would move from the steel industry to those industries in which Isoland has a comparative advantage. Although the transition may impose hardship on some workers in the short run, it allows Isolandians as a whole to enjoy a higher standard of living.

Opponents of trade are often skeptical that trade creates jobs. They might respond that everything can be produced more cheaply abroad. Under free trade, they might argue, Isolandians could not be profitably employed in any industry.

"You like protectionism as a 'working man.' How about as a consumer?"

As Chapter 3 explains, however, the gains from trade are based on comparative advantage, not absolute advantage. Even if one country is better than another country at producing everything, each country can still gain from trading with the other. Workers in each country will eventually find jobs in the industry in which that country has a comparative advantage.

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