Introduction

If there were an Economist's Creed, it would surely contain the affirmations "I understand the Principle of Comparative Advantage" and "I advocate Free Trade." For one hundred seventy years, the appreciation that international trade benefits a country whether it is "fair" or not has been one of the touchstones of professionalism in economics. Comparative advantage is not just an idea both simple and profound; it is an idea that conflicts directly with both stubborn popular prejudices and powerful interests. This combination makes the defence of free trade as close to a sacred tenet as any idea in economics. (Krugman 1987: 131)

As the renowned international trade economist Paul Krugman notes in the quotation above, economists have long recognized that free trade is the cornerstone of a sound economic policy. Free trade raises economic welfare because it enables national economies to specialize according to their comparative advantage. When economies specialize in the production of those goods at which they have a comparative advantage, they can trade these items for other goods that the consumers in that country value but are less efficient at producing. Free trade therefore allows individuals to consume more than would be possible in the absence of trade. It is in this way that a policy of free trade raises national income and increases economic well-being.

Perhaps more than any other time in history, ours is an era of relatively free trade among nations. Since the end of World War II, super-governmental organizations like the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO) have promoted freer multilateral trade among nations. From the Kennedy Round in the 1960s to the Tokyo Round in the 1970s and, most recently, the Uruguay Round of the 1980s, the GATT has sought to reduce barriers to trade among nations and promote a more open trading environment. Meanwhile, the European Union (EU), Asia-Pacific Economic Cooperation (APEC) and agreements like the North American Free Trade Agreement (NAFTA) have worked to reduce barriers to trade on a more regional level. The proliferation of free trade arrangements among nations reflects the extent to which the wisdom of free trade as an economic policy has gained broad political acceptance.

Trade liberalization has formed a major part of Canadian economic policy in recent history. Ten years has passed since the signing of the Canada-United States Free Trade Agreement (FTA). The addition of Mexico to the FTA resulted in the formation of the North American Free Trade Agreement (NAFTA), creating the world's single largest free trade zone. [Some Canadian trade statistics are provided in the Appendix.] Yet, in spite of general agreement among economists and policy makers about the desirability of these developments, criticism of free trade as a sound economic policy continues unabated and critics of free trade continue to attract considerable public attention. In the United States, protectionist politicians like Ross Perot and Pat Buchanan enjoy substantial public support. In Canada, the opinions of nationalist anti-free trade crusaders like Maude Barlow, Mel Hurtig, and the Council of Canadians resonate throughout the country. According to Barlow, Hurtig, and others, free trade has ruined the Canadian economy and resulted in the "sale" of Canada to foreign multinationals. [See, for instance, Hurtig 1991 and Barlow 1990.] In addition, it is claimed that free trade is responsible for destroying thousands of jobs and has undermined the ability of governments to intervene in the economy.

The purpose of this study is to analyze critically the claims of these opponents of free trade in light of the empirical evidence. Now that we have reached the tenth anniversary of the Canada-United States Free Trade Agreement, the time seems ripe to embark on such a task. We begin by outlining the economic arguments for free trade. This is followed by a discussion of regional versus multilateral free trade with special focus on the FTA and NAFTA. We then consider non-economic reasons for the pursuit of regional trade agreements. Finally, we proceed to dissect several of the major claims made by the opponents of free trade about the effects of NAFTA and the FTA. We find, in each case, that the claims made by protectionists about the impacts of free trade on the Canadian economy are either exaggerated or completely false. Free trade has not ruined the Canadian economy. Rather, free-trade policies have increased economic growth and raised economic welfare, precisely as the standard arguments in favour of free trade predict.