Free Trade Is Mutually Beneficial, Creates Value, And Raises Living Standards

According to several news reports today, including this Bloomberg News article, this San Francisco Chronicle article, this BBC report, and this Financial Times article. The BBC article states:

US President George W Bush will on Friday call for a free trade area between the US and the Middle East within a decade, officials have said.

The proposed free trade area would build on existing US free trade agreements with Israel and Jordan, an unnamed senior administration official was quoted as saying.

Washington hopes Iraq and a new Palestinian state would be among countries that qualify for membership, the official said.

Since I quoted Adam Smith yesterday, I will follow with a relevant quote here about how trade enables people/countries to specialze according to comparative advantage, thus increasing total production, and most likely at lower cost. This quote is from David Ricardo’s Principles of Political Economy and Taxation. Note that his examples illustrate comparative advantage as it was in 1817; due to technological change and other manifestations of human creativity and economic dynamism, comparative advantage is itself endogenous:


In one and the same country, profits are, generally speaking, always on the same level; or differ only as the employment of capital may be more or less secure and agreeable. It is not so between different countries. If the profits of capital employed in Yorkshire, should exceed those of capital employed in London, capital would speedily move from London to Yorkshire, and an equality of profits would be effected; but if in consequence of the diminished rate of production in the lands of England, from the increase of capital and population, wages should rise, and profits fall, it would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia, where profits might be higher. … [Ricardo lays out the comparative advantage: Portugal can produce both wine and cloth with less labor than England, but she specializes in wine and buys cloth from England, and between the two of them they produce more wine and more cloth, to the benefit of each.]


Thus free trade is mutually beneficial, and creates value and growth. Seeing this value creation occur in the Middle East would be super.