The idea of free trade is of course based primarily on David Ricardo’s 1817 theory of ‘comparative advantage’. Comparative advantage is a lovely little mathematical proof that even if one party is better at producing everything, the greatest efficiency in production can be attained, and all parties can benefit, if each trading party focuses on producing what they are relatively best at, and they trade freely with one another for the rest of what they need.
….comparative advantage does not take into account the costs associated with shifting a regions productive infrastructure from where it is now to producing what it is relatively best at producing.
Neither does comparative advantage take into account the costs of trade; the ports, the ships, the rail lines, the petrol. As well as the economic costs, we can also look at social and environmental costs in relation to both this and the above point.
….Considering these problems, I think it is fair to say that all that the mathematical proof of comparative advantage tells us is that it is possible for all parties to benefit from free trade, not that they necessarily will.
via Free trade's not free, bring back the tariff – On Line Opinion – 1/12/2011.
Comparative advantage theory doesn’t take into account strategic industries as well. I think the ivory tower economists assume there will never be another major conflict. They seem to forget we still have politicians who always get us into conflicts.In fact the politicians are responsible for the monetary mess the world is in at the moment. In fact a good old conflict would divert every ones attention onto other things at this point in time.
We must remember that water always runs down hill and our jobs will go with it. Comparative advantage only works one way especially when one country keeps it currency undervalued by 25%. That is just a form of economic terrorism but our pollies do nothing except bicker like school kids and get lovely pay rises while others are told to cut back.