Free trade, we are told, is a good thing. It lowers the price of imports, so we get a better deal, whilst lowering the cost of our exports, so we sell more.
Sure, imports might undercut our locally produced goods, but that forces us to operate more efficiently, or move on to an industry we’re better at.
Steve Keen, associate professor in economics and finance at the University of Western Sydney, says the theory is fine, but it makes great assumptions on the mobility of capital and labour.
In this edition of BTalk he takes us back to the work of David Ricardo, who was advancing the theory of free trade in the early 1800s. The problem with his approach, and other advocates since, is that capital is not readily mobile between industries. Free trade is often introduced quickly, Keen argues, with little concern for the decimation it can cause in the mid-term.