Free vs. Fair Trade – Pandemic Edition
At the beginning of studying economics, the two basic ideas every undergrad learns about are the theories of absolute and of comparative advantage, respectively. Ricardo, one of the most influential classical economists, claims that countries specializing in the production of goods for which they have a comparative advantage – meaning a lower opportunity cost in producing those goods – will be better off after engaging in trade with those countries that specialize in different products and services. A win-win situation results from the increased efficiency that derives from specialization of countries, regions or companies. This indispensable theory provides strong arguments in favour of free trade and, more importantly, of the freedom to choose whom to trade with. Its implications apply to all individuals and companies inhabiting those nations. Yet, according to the preacher of fair trade, there seems to be something amiss with Ricardo’s theory. More