Quite possibly to prove the govt . gets easily butthurt ? <| sep |> First I ' d like to thank you for the blog because I love reading stuff like this ! I think it ' s great that we live in a world where people can exchange ideas and thoughts with the click of a button , where millions can learn and grow . I have several counter points and arguments against your presumption that free trade harms people , but first I think it is important to establish that Pareto Efficiency is very difficult to achieve in any economic scenario . I ' m not arguing that Free Trade is Pareto Efficient , there are winners and losers . But I will argue that Free Trade does yield a greater outcome than protectionist measures . 1 You equate financial bubbles and events such as the Great Depression as though they are the culmination of Free Trade policies . I disagree , I would argue that in the case of the Great Depression in particular , this was far more because of monetary policy . When aggregate demand diminishes , real wages must also diminish so firms can adjust their aggregate supply . Otherwise , unemployment will rise . The SmootHawley tariff act prevented firms from doing so , and really expounded the effects of the Great Depression . If history has taught us anything it is that the absence of free trade has led to more domestic economic volatility . It leads to greater unemployment , not less unemployment . 2 You mention a sort of natural equilibrium in the case of protected steel in one nation and surplus grain in another . But you did not touch on the question of if the steel industry ought to be subsidized and protected . Inevitably when you prevent an industry from competing on the open market , which is what steel subsidies do , you take away any consumer surplus that would have been . You decrease aggregate demand . Even worse , you ' ve employed an entire sector that is financially unsustainable . Further expounding the problem is that when the protectionist measures become too expensive , wages usually remain pretty sticky so a real full employment equilibrium is very difficult to achieve . This is what is bogging down the rustbelt in the US , and we ' ve seen this time and time again from Canada ' s National Policy to Brazil ' s Import Substitution regime . Protectionist subsidies or tariffs do not at all lead to net benefits in the long run , and even marginal localized net benefits in the short run . 3 I feel as though there is a fallacy in your thinking about dumping . You see trade as a zero sum game . If China dumps steel in the US , America loses and China wins . The reality is more complex than that . When China dumps steel into the US , their firms are not operating at optimal efficiency . Their inventories have exceeded demand , and the natural reaction is to contract production and aggregate expenditure . When China dumps steel in to the US , this results in an enormous American consumer surplus at the expense of the Chinese firm . Dumping is never a long termed solution to anything . I think the problem is , you are focusing on the visible effect of the decline of American steel , and not the invisible effect of rising incomes and American aggregate expenditure . The marginal propensity to consume will increase with cheaper Chinese steel , Americans enjoy higher real wages because of that . Consumer spending goes up all things being equal , and more jobs are created because of that . Fred may have lost his job at the Steel Mill , you do see that . But what you do not see is the 5 or 6 jobs that that the consumer surplus created . 4 I think you are mistaken regarding trade deficits . Trade deficits are not inherently bad things . Every single economic expansion in US history save for the early 1990 s when we saw massive technological impacts on aggregate supply has resulted in a trade deficit . Some of the largest trade deficits during the 1860 s to 1890 s when the US real GDP effectively doubled in 30 years . Think about it this way . if you export 1 unit , and receive 3 units back , would you consider this a bad thing ? Imports increase our standard of living , exports are the cost . The more output we can get for a unit of work , the more productive and better off we are as a society . 5 You touch on how firms take advantage of the world price while utilizing local markets like it is a bad thing . First of all , you cannot compare the CPI between Saigon and LA , or Singapore and Bora Bora . People usually paint factories in the third world as a bad thing , but one fact remains . poorer nations benefit from free trade . There has not been one FTA signed that has resulted in a poorer base for the population . In fact , since the 1990 s there have been over a billion people lifted out of poverty , and much of that can be attributed to a more open global market place . This results in inflation in the third world , not deflation . Their CPIs go up , not down . Furthermore , the consumer surplus and economic activity generated in the wealthy country increases wealth even more . Put it this way . do Americans suffer because they can purchase cheap bananas from Guatemala ? Do Americans suffer when they can buy cheap clothes from Bangladesh ? You may drive the American clothes producer out of business , and in that the FTA may not be Pareto Efficient . But you created 3 other jobs at stores and trucking companies , and you ' ve increased real wages by introducing cheaper items into the market . I don ' t see how we lose by that . You know , with this argument of domestic vs world prices and markets , you can make the exact same argument between towns and cities within the US . If we wanted to , we could close off trade between US states , but do you really think that would benefit the average American ? Think about that . 6 If you restrict foreign trade , the reserves of US dollars goes down in other countries . What do you think those countries do with US dollars ? They invest it in America ! Or they hold them and raise the value of the exchange rate , benefiting American consumers even more . The propensity of foreigners to spend American dollars almost always leads to spin off effects that either increase American exports or increase foreign direct investment in America . That ' s all I have for now , but I will be back !