However, while freer trade generates real income gains for countries as a
whole, it does not necessarily improve the income for every individual
the country. For example, reducing an existing tariff on the import of steel
will be beneficial for the many consumers of steel who can now purchase
the product at a lower price. At the same time, however, the lower tariff
will reduce income for those domestic firms and workers involved in the
production of steel. That the total gains to the first group are much larger
than the losses to the second group in no way avoids the fact that some
people get harmed by freer trade.
If we ask whether it is possible for free trade to improve everyone’s living
standards, the answer is yes because the larger total income that free
trade generates could, at least in principle, be divided up in such a way
that every individual is better off. If we ask whether free trade always
does so in practice, however, the answer is, not necessarily.
Free trade makes the country as a whole better off, even though it may not make every
individual in the country better off.In today’s global economy, a country’s products must stand up to
international competition if they are to survive. Over even as short a
period as a few years, firms that do not develop new products and new
production methods fall seriously behind their foreign competitors. If one
country protects its domestic firms by imposing a tariff, those firms are
likely to become complacent about the need to adopt new technologies,
and over time they will become less competitive in international markets.
As the technology gap between domestic and foreign firms widens, the