Much of the recent trade debate between Rodrik, Mankiw, Tyler and others (see Tyler’s excellent post for links) is primarily not about positive economics but about the relevant moral community. Rodrik, for example, hasn’t argued that trade does not increase aggregate wealth he has argued that trade is not guaranteed to increase national wealth – something quite different. I consider three moral communities and the case for trade.
Peter wishes to trade with Jose. The individualist says the relevant moral community is Peter and Jose and presumptively no one else. Trade, the right of association, is a human right and on issues of rights the moral community is the individual. When Jose offers Peter a better deal than Joe it’s wrong – a moral outrage – for Joe to prevent Jose at gun point from trading with Peter.
The more common view expressed implicitly by Dani Rodrik, but by many others as well, is the nationalist view, the moral community is Peter and Joe. Joe gets a vote on Peter’s trades. Peter should be allowed to trade only if both Peter and Joe benefit, otherwise too bad. Jose counts for less.
A third view, that of the liberal internationalist, says that Peter, Jose and Joe count equally and are together the moral community.
Now how does the positive economics apply to these three cases? Peter and Jose presumptively are better off from trade otherwise they wouldn’t trade so the individualist economist (the economist who takes Peter and Jose as the relevant moral community) will support free trade. The liberal internationalist will also support free trade because there is a strong argument from positive economics that trade increases total wealth (comparative advantage, specialization, competition etc.).
In between, we have the nationalist economist for whom it depends. The case for trade for the nationalist economist is pretty good – after all the individuals involved benefit and the world benefits – so the case is reasonably strong that Peter and Joe taken together will also benefit especially if we consider many trade pacts on some of which Joe benefits directly. Nevertheless, Rodrik is correct that when you exclude Jose it is possible to come up with examples where Joe’s losses exceed Peter’s gains.
I would argue, however, that economists are too quick to take the nation as the relevant moral community. It is quite possible, for example, for Peter to benefit from trade but for Peter’s city to be harmed, for Peter’s state to benefit but for his region to be harmed, for his country to benefit but for his continent to be harmed. Why should we cut the cake in one way, excluding some from the moral community, but not in another? Indeed, geography is not the only way we can define the moral community. Why not ask whether English speakers benefit from free trade or Christians or left handed people? Each of these is just as valid as asking whether the collection of people called the nation benefit from free trade.
I understand individual rights and I understand counting everyone equally but I see less value in counting some in and some out based on arbitrary characteristics like which side of the border the actors fall on.