《Is Free Trade Passe》.pdf

Economic Perspectives— Volume 1, Number 2—Fall 1987—Pages 131-144 Is Free Trade Passe? Paul R. Krugman f there were an Economists Creed, it would surely contain the affirmations I understand the Principle of Comparative Advantage and I advocate Free ITrade. For one hundred seventy years, the appreciation that intemational trade benefits a country whether it is fair or not has been one of the touchstones of professionalism in economics. Comparative advantage is not just an idea both simple and profound ; it is an idea that conflicts directly with both stubbom popular prejudices and powerful interests. This combination makes the defense of free trade as close to a sacred tenet as any idea in economics. Yet the case for free trade is currently more in doubt than at any time since the 1817 publication of Ricardos Principles of Political Economy. This is not because of the political pressures for protection, which have triumphed in the past without shaking the intellectual foundations of comparative advantage theory. Rather , it is because of the changes that have recently taken place in the theory of intemational trade itself. While new developments in intemational trade theory may not yet be familiar to the profession at large, they have been substantial and radical . In the last ten years the traditional constant returns, perfect competition models of intemational trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition. These new models call into doubt