Essay Winner: Niklas Jenkins

Earlier this semester, the Econ dept hosted an essay writing contest inviting students to explore, advance, apply, or illustrate an idea that they found most appealing, counter-intuitive, or poignant in their economics classes. We had 4 winners in no particular order:

• Kealan Vasquez
• Niklas Jenkins
• Max Bodach
• Mairead Kennon

As winners of the essay contest, the students attended the Southern Economics Association conference in late November and they'll have their essays published here. So, without further ado:

Mr. Niklas Jenkins: Free Trade and Comparative Advantage: Their Importance for the Common Good

The relationship between free trade and comparative advantage deserves a great deal of attention, as it provides the most productive method for mutually beneficial cooperation. They mutually enable each other and encourage specialization to produce more goods more efficiently. This idea, always important, has become particularly crucial in the Information Age, where improved technology allows for much easier trade over long distances and further increases the potential benefits of specialization. However, there are those who would selfishly hurt the rest of society and the world to protect their own interest and restrict the free market. There should be a push-back against such attempts, as it is deeply harmful to the economy at any scale. Free trade and comparative advantage are basic building blocks of a competitive market that work together amazingly well, and should be protected from the interference of self-interested groups.  

In order to understand the importance of the relationship between these two ideas, we must first delve further into them. Free trade essentially means the removal of political barriers to the exchange of good between nations, while comparative advantage refers to the ability of an individual or group to produce a good efficiently relative to others. These are both important to the maximization of total welfare. Comparative advantage lowers costs, thus also lowering prices, and free trade ensures that it is much easier to buy at those lower prices. A nation or group with a comparative advantage in producing a good is thus incentivized to specialize in production of that good, enabling each country to produce where they are relatively most productive. It acts as a larger scale example of removing entry barriers in a smaller scale economy, leading closer to a global version of perfect competition. As perfect competition maximizes welfare, and best encourages a properly functioning and unrestricted market, this seems desirable on a larger scale as well. Therefore, these two functions should be strongly encouraged by all governments. 

Free trade and comparative advantage grow in importance in the Information Age, where improvements in technology and communication increase the potential gains from both. A greater variety of goods and capital means that specialization is even more important, and comparative advantage grows more pronounced as advanced countries are better able to produce high-tech products. As an example of how this results in an improvement overall, better manufacturing opportunities have appeared for less advanced countries. The overall economic growth from various sources also means the magnitude of this improvement will be greater. 

However, there are challenges that must be met to enable this growth. Some groups will be hurt by the additional free trade, as some firms that may previously have been able to sell domestically lose that market due to the greater availability of cheaper foreign goods. This will hurt those firms and their employees to a potentially significant extent. While in the long term it will have good effects such as encouraging more investment in areas with a comparative advantage, in the short term problems such as unemployment do arise. This provides an incentive for some groups to try to prevent free trade. The easiest path to this goal is through lobbying the government for measures like tariffs and quotas that benefit the affected sectors to the detriment of everyone else. Producers in particular benefit from such legislation, which is problematic as they have the resources and unity to make lobbying much easier. Therefore while free trade and comparative advantage are highly beneficial, the problem becomes more complicated in practice.

Overall, the takeaway should be that while challenges will arise, encouragement of free trade and specialization will be for the overall good. Through them, everyone who participates will be better off in the long run with patience. Attempts to attack the practice of these ideas both attacks the freedom of the market and causes long term harm in service of short term considerations.