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Primarily, the economies used to be highly centralized and controlled by Monarchs. There is no way to become a monopolist in free trade. So, Monarchs would award monopolies to their favorite lords. This system in which Legally awarded monopolies existed was called Mercantilism. Then came Adam Smith. He wrote “The Wealth of Nations”. In this book, he destroyed mercantilism and managed centralized trade. He proposed the idea of free trade and asked monarchs to open the borders to trade and migration. He showed that this policy would make the nation rich. Although the idea was not new, Adam Smith made it popular. He could not be more right.
The open border and open trade policies in Britain revolutionized the economy. The idea was so successful that country after country started adopting the open trade and open borders policies. It became one of the few theories in economics that have a consensus between all schools of economics, with a minor exception of some Socialist and Nationalist Economists. The problem here is that, on the one hand, open competition takes power and control away from I-know-it-all control freaks and tyrants. On the other hand, it makes the crony corporations that fund the political parties and politicians unhappy. So, the obsession with power and control and cronyism never let protectionist policies completely go away.
To an average Joe, protecting jobs at home sounds very appealing. Plus, the scaremongering of immigrants takes away all the jobs, and by importing stuff, the jobs are being exported to other countries. Also, there is concern that cheap immigrant labor is pulling wages down. So, it is a good way for politicians to get votes and for the media to sell the news. But, the economic reality is precisely the opposite. These policies are not implemented to help poor people. The purpose of these policies, as always has been, is cronyism. To return the favor to the corporate funding sources. The trade barriers kill competition and choice. Domestic producers can now sell the products at higher prices without worrying much about quality and service.
On the other hand, the workforce is directed towards less efficient and less competitive means of production. Hence lowered wages and worse working conditions. The worst effect is that consumers have to pay more for the same products and settle on lower quality and poor service because those specific industries needed the protection in the first place only because domestic production is not the most efficient, is costly, and of lower quality. Foreigners beat domestic producers because they provided better products at lower prices. Take the example of cars. If tariffs kill the import of Hondas, Toyotas, VWs, Mitsubishis, Suburus, Acuras, and others, what will be the choices left, what quality and at what prices?
The ideas of free trade and open migration lie in the basic nature and philosophy of free-market Capitalism. It says that markets evolved naturally from non-existence when every individual took care of all his or her needs all by himself or herself. The basic economic unit that first developed was the family. All family members collaborated to take care of all the family’s needs, i.e., food, water, cleaning, clothing, health and learning, etc. Gradually, people realized that some people do certain jobs better than others while others can never master specific jobs regardless of their hard work. So, naturally, it leads to the realization that everyone does not have to do everything.
Specialization started evolving. People started concentrating more on the jobs that they do better and would avoid the jobs they suck at as much as possible. People would then trade their products with each other. Specialization and competition also resulted in improving the variety and quality of products. As populations grew, variety, choice, and quality expanded to a large extent. This made finding the right product to exchange at the right time and from the good producer increasingly tricky. This exchange of products or barter required double coincidence. For example, if you produced wheat and needed a suit, you would have to find a suit producer willing to trade his suits for wheat.
Now what? Slowly, people realized that certain products have a better demand than others. The exchange of those products is, therefore, more straightforward. So, it would be a good idea to trade your product for something in higher demand, salt, for example, and later exchange it for something you need or want. This made life easier. But, problems persisted. For example, suppose a person has a cow to trade and needs clothing and cleaning products. How would he divide the cow between the two or more product exchangers, even if he finds a clothing and cleaning products seller who wants to exchange their products for cow or cow meat?
If he sold the cow for salt, he would have a better chance of getting clothing and cleaning products in exchange for salt. Over time, some products became more valuable mediums of exchange than others because they were expensive, durable, and desirable—a better combination of these qualities, more value as the medium of exchange. Many commodities were tried as a medium of exchange during this period in different places. Sea shells in coastal areas, dates in deserts, Coconuts in tropical areas, rocks in the mountains, and food items in various locations. Ultimately, two commodities stood out more than others, gold and silver, until gold became the medium of exchange.
This whole economic, financial, and market evolution occurred naturally because humans wanted to produce efficiently so that high-quality products could be bought at the lowest possible prices. This still holds. For the most efficient production, each product must be created where it is made most efficiently, at the lowest cost, and of the highest quality. The universe is not set up to favor the material life here. All the entropic forces here are working to end life. The positive energies of life have to work very hard to survive, grow and prosper. So, the prosperity here is possible only with the highest level of efficiency and protectionism hurts it a lot.
