Invalid Arguments for Protection
We have seen that free trade is generally beneficial for a country overall
even though it does not necessarily make every person better off. We
have also seen that there are some situations in which there are valid
arguments for restricting trade. Yet public discussion about free trade is
laden with several invalid arguments, which often cloud the debate. Here
we review a few arguments that are frequently heard in public debates
concerning international trade.
Keep the Money at Home
This argument says that if I buy a foreign good, I have the good and the
foreigner has the money, whereas if I buy the same good locally, I have
the good and our country has the money, too. This argument is based on
a common misconception. It assumes that domestic money actually goes
abroad physically when imports are purchased and that trade flows only
in one direction. But when Canadian importers purchase Japanese goods,
they do not send dollars abroad. They (or their financial agents) buy
Japanese yen and use them to pay the Japanese manufacturers. They
purchase the yen on the foreign-exchange market by giving up dollars to
someone who wants to use them for expenditure in Canada. Even if the
money did go abroad physically—that is, if a Japanese firm accepted a
bunch of Canadian $100 bills—it would be because that firm (or someone