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:

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

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.]

It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose. In that case, the relative value of these commodities would be regulated by the same principle, as if one were the produce of Yorkshire, and the other of London: and in every other case, if capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the real or labour price of commodities, than the additional quantity of labour required to convey them to the various markets where they were to be sold.

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