Point 1- Free trade doesn't prevent a country from deliberately over-consuming and running trade deficits.
This is a highly nationalistic position that assumes it is inherently bad for the industries of country X to be owned by people from country Z. "Selling off existing assets" might be a viable strategy. Country Z might have a comparative advantage in management, while X specializes in labor. Z owned factories manned by Xian workers in Xland might result in highest overall output of the various combinations.
If a trade deficit is undesirable, then protectionist tariffs are a poor solution. This just hurts the purchasing power of an already under-producing nation. If there are ANY barriers to entry within the productive sectors, those should be eliminated first. Most likely a country running a trade deficit has some, if not multitudes of, government imposed dead weight losses on production, ie corporatist redistribution, nationalization, legally recognized cartels, etc. If ALL centralized controls are removed, and Xland is still experiencing a trade deficit, this implies one of two scenarios:
A) Xland currently has no capacity to produce at all, with or without government intervention, and is importing survival foodstuffs. Forced reduction in consumption by tariffs would be tantamount to a planned famine. If the country is taking on debt, its because the lenders expect Xland to eventually build infrastructure and make things.
B) Xland is producing, but truly living beyond their means. So yes, this is unsustainable, in that eventually bills have to be paid. The longer the deficit persists, a greater percentage of income is devoted to debt service, so a given over-consumption level becomes exponentially expensive. At some point, X-ians creditworthiness is called in to question and their consumption gets cut down to what they can really afford. There are no tariffs necessary to achieve this, because without government tax-and-spend, the only source of international credit are people who want to get paid back. Thus debt cannot rack up limitlessly.
Point 2 - Externalities
If Xland has unaccountable polluting factories, that is not Zland's problem. If on the world market, Xland is offering widgets for less than any other country, then if Zland singles out Xland products for a tarriff, that is punishing Z-ian standard of living, for Xland's crime.
If the X-ians are unable to sue their neighborhood factories for damages, they should at least get the proceeds of selling widgets to Zland out of the deal. Both parties are still better off internationally via free trade, even if internally, one country's citizens are being oppressed. Ideally, X-ians would be able to sue their government/industrialists and eliminate the externality, and then proceed to compete with appropriately priced widgets. However, in the absence of this right, its neither fair to X-ians nor Z-ians to prevent the sale of what is being made.
As for positive externalities, this seems to be an intellectual property argument? I've argued against IP at length. It seems like Mr. Fletcher is saying that Xland would be better off not selling any new-widgets to Zland, rather than risk selling some new-widgets to Zland and risking Zland become better at making new-widgets. I counter that any sales are better than zero. Also if X-ian producers are concerned about Z-ian reverse engineering, they can raise the price for new-widgets themselves voluntarily to reflect the value of the design. They do not need Xland government to do this for them.
Point 3 - Resources move slowly when economy changes
True, changing production strategies is non-instantaneous. However its unclear how this is free trade's fault. A centralized plan would either continue the low-value activity indefinitely, or be even slower at re-organizing capital and labor to the high-value task. Instituting tariffs only hides existing inefficiencies longer. Shielding domestic industries from foreign competition, muddles the price signal which would inform re-tooling decisions, and prolongs the transition period. Furthermore, a lot of malinvestment that busts and needs to be reallocated, was originally directed by government incentive. Ie the decreed low interest rates and legal quotas for unviable CRA mortgages that spurred excessive housing construction.
Point 4 - Free trade increases income inequality
This is a non-problem. Even if one's income remains static while the capitalists are improving, the mere fact that more production is occurring means that products on the whole are cheaper, so purchasing power is expanding.
Point 5 - Capital flight is somehow bad.
Fletcher claims that the ability to relocate capital abroad is bad domestically. Why would you invest in another country? Because they can offer better return than your homeland's opportunities. Emphasis on return. When Xian investors earn interest on investments in Zland, the GNP of Xland is increasing. If the best possible opportunity for Xland capital is to put it into Zland, then Xland is by definition worse off if its citizens' liquid assets are forced to stay home, via extra taxes on foreign investment or some such.
Also the ability to move capital across borders is pretty critically important as a check against kleptocrats, and less extreme government manipulations.
Point 6 - Comparative advantage theory is too concentrated on short term.
Fletcher makes an analogy to a secretary and a banker, who in the short term are best off by striving to be the best at their jobs, but in the long term, the secretary should be trying to become something other than a secretary.
Back to the international trade example. If Xland is currently a subsistence agriculture backwater, then free trade means that Zland can come build factories, (keeping most the profit of course, greedy villains that they are), bumping X-ians up to higher paying unskilled labor, and more products are imported (again thanks to free trade), Xland's standard of living increases, so percentage of population devoted to survival decreases, meaning labor becomes more diverse, and things like higher education, etc become affordable. Free trade will naturally upgrade both productive quality and quantity over time. However, this occurs over generations, and is easily derailed by autocrats playing massive negative sum games for the benefit of oligarchs. By being the best subsistence farmers and unskilled laborers they can, if allowed access to foreign investment and to keep their wages, X-ians will eventually build the tools necessary to advance.
Any attempt at intervention, via 'infant industries' or similar is only going to keep people in poverty longer, and further away economic independence; or is just redistribution from somewhere else, which means the global economy is slightly worse off on the margin.
Point 7 - When the economies of foreign trading partners improve, their labor becomes more expensive, and so too their goods.
So we shouldn't buy cheap stuff, because that will make the makers of the cheap stuff better off, and then their stuff won't be so cheap anymore?
Pretty horrendous argument. So instead, if Xland is currently the sweatshop paradise, Zland should:
Either pay more for the same stuff from Wland, or via tariff, or just go without and endure lower standard of living. This way Xland will remain trapped in low-paying labor indefinitely, so Zland can continue not enjoying their cheap goods.
Win for interventionism!
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