Recently Geneva Steel received word that the hoped-for financing to keep it going had been turned down. The shutdown has resulted in the loss of many jobs.

Since then, many people have attacked free trade for Geneva's demise. But I'd like to take what appears to be an unpopular position in favor of free trade.

Free markets must be win-win propositions. I will not voluntarily trade my X for your Y unless I come out ahead. You will not voluntarily trade your Y for my X unless you come out ahead. If we transact, we must both come out ahead. What some people in the United States call unfair competition from workers willing to accept low wages, people in other countries call a blessing. The reason that workers in these countries are willing to work for less is that those jobs are the highest paying and most secure jobs available. The jobs mean their children get health care and don't have to live on dirt floors. Free trade means that both countries, in aggregate at least, can be better off even though some individuals may be worse off. For example, let's suppose that in Country A apples are cheap and oranges expensive, and in Country B the opposite is true. If free trade is allowed, the price of oranges in Country A will fall and the price of apples will fall in Country B. In total, all people can afford more of both apples and oranges.

The problem is that orange growers in Country A and apple growers in Country B lose their jobs and must find other work. Of course, apple growers in Country A and orange growers in Country B will hire some of the displaced workers, but the workers may have to retrain or move. So even though in aggregate everyone is better off, some individuals are worse off, and these individuals will fight against free trade. Although the majority of people are benefited, the benefits may be small for individual consumers (a few more apples and oranges) so that it is not worth the individual effort to fight for free trade. However, if you add up the small benefits to the individuals in the majority, the total far outweighs the loss to the minority.

In the long run, fighting free trade makes things worse. First, the country might raise tariffs to protect miners, which raises the price of ore. But steelmakers are hurt because they can't compete with foreign steelmakers who can buy ore for less, so the country has to raise tariffs to protect steelmakers. But then carmakers are hurt since they have to pay higher prices for steel and can't compete against foreign automakers who can buy steel for less. Eventually everyone is paying higher prices and the standard of living falls compared to the rest of the world.

Studies of the automobile quotas in the 1980s to protect U.S. automakers indicate that auto buyers paid more than twice the price to save a job than the salary the job paid. In the long run, the restricted supply caused by the quotas meant that the Japanese automakers sold for higher prices and, since their costs were lower, made large profits, with which they bought technology that reduced costs even further.

The quotas raised the prices in the U.S. enough that automakers could pay their workers, but there weren't enough profits to invest in new technologies, which is why the U.S. plants reduced labor or closed. Membership in the United Auto Workers union has fallen from 1.5 million in 1979 to 671,000 at the end of 2000. The barriers to free trade may have saved jobs in the short run, but they destroyed them in the long run.

Entrepreneurs are constantly searching for ways to offer a higher quality product at lower cost. Sometimes this means going global. We should tolerate the short-term pain of job losses for the long-term gain of higher standards of living that free trade creates.