The Case for Regulated Trade

When trade occurs, whether it’s between individuals or countries, the presumption is that both sides of the deal benefit. This leads to the idea of “free trade” in which the open market maximizes welfare. The efficiency of trade, however, rests on two key assumptions. First, there should be no externalities, that is, only those involved in the decision are affected. Second, there should be no uncertainty surrounding the transaction or its effects. Unfortunately, with international trade, both of these assumptions fail as global supply chains mask the impacts of trade on workers, consumers, and the environment. This then creates a role for regulatory trade policy which, although second best, can be the most feasible way of addressing the negative effects of trade.