Blocking trade paths hurts economies and makes everyone a loser

The classical British economists Adam Smith and David Ricardo first proposed this idea hundreds of years ago.

In essence, comparative advantage proposes that when any two countries specialise in producing the goods in which they have a comparative cost ­advantage, the combined output and hence income of both countries rises. Hence it pays economies to specialise in production and trade with each other. The same applies to regions and to individual production units within economies.

Ricardo used the example of ­England and Portugal.

If England was relatively more ­efficient at making cloth than wine, it followed that it should specialise in cloth making and export cloth to pay for wine imports.

Other reasons for supporting international trade are as follows. More international trade means consumers have a greater variety of goods and services to choose from. In addition, producers sell to bigger markets, which can lower costs as production is on a larger scale, while competition from imports checks the market power of domestic firms. Trade is also a powerful vehicle for spreading technology.

Why then does liberalising international trade create so much rancour if it delivers these economic gains? The answer is that although the winners from increased international trade generally outweigh the losers, the often not so visible benefits are diffused over large numbers of consumers, whereas the losers are usually concentrated in particular industries and are not compensated. Being concentrated, losers can also more easily organise and understandably have strong incentives to try and block any change.

Ideally, losers from increased international trade should be compensated by winners, though unfortunately, this usually proves impractical. Yet blocking new trade is a worse outcome as it means lower prosperity overall.