Economics Explored

Does Free Trade Benefit Everyone? A Deep Dive into the Stolper-Samuelson Theorem - EP272

Episode Summary

Is free trade always good for workers? Gene Tunny explores the Stolper-Samuelson theorem, which shows how trade can lower wages for some workers, even though the overall economy is better off. He discusses key economic insights from Wolfgang Stolper and Paul Samuelson, real-world historical examples, and the implications for today’s global trade debates.

Episode Notes

Is free trade always good for workers? Gene Tunny explores the Stolper-Samuelson theorem, which shows how trade can lower wages for some while benefiting others. He discusses key economic insights from Wolfgang Stolper and Paul Samuelson, real-world historical examples, and the implications for today’s global trade debates.

If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.

Timestamps for EP272

Introduction (0:00)
Explanation of Comparative Advantage and Free Trade (1:50)
Background on Wolfgang Stolper and Paul Samuelson (5:50)
The Heckscher-Ohlin Model and Indirect Factor Arbitrage (16:37)
Stolper-Samuelson Theorem and Its Implications (26:35)
Empirical Evidence and Historical Applications (31:53)
Conclusion and Future Directions (32:19)

Takeaways

Free Trade Creates Winners and Losers – The Stolper-Samuelson theorem predicts that free trade benefits the owners of a country’s relatively abundant factors (e.g., capitalists in capital-rich countries) but can harm the owners of relatively scarce factors (e.g., workers in industrialised economies).
Economic Theory Still Favors Free Trade Overall – While trade can hurt specific groups, economists argue that overall national income rises, making it possible (though not always politically feasible) to compensate the losers.
Historical Evidence Supports the Underlying Theory – Examples from 19th-century trade patterns show factor price convergence, with land rents rising in the U.S. while falling in Britain due to increased trade.
Trade Policy Shapes Political Alliances – Farmers in land-rich nations like Australia and the USA often supported free trade, while industrial workers in capital-rich nations tended to favor protectionism.

Links relevant to the conversation

The previous episode with Ian Fletcher:

https://economicsexplored.com/2025/01/21/industrial-policy-vs-free-trade-w-ian-fletcher-coalition-for-a-prosperous-america-ep271/

Stolper and Samuelson’s 1941 paper “Protection and Real Wages”:

https://academic.oup.com/restud/article-abstract/9/1/58/1588589

William Bernstein’s book “A Splendid Exchange: How Trade Shaped the World”:

https://www.amazon.com.au/Splendid-Exchange-Trade-Shaped-World/dp/0802144160

Roger Backhouse’s book “Founder of Modern Economics: Paul A. Samuelson: Volume 1: Becoming Samuelson, 1915-1948”:

https://www.amazon.com.au/Founder-Modern-Economics-Samuelson-1915-1948/dp/0190664096

Edward Leamer’s paper on the Hecksher-Ohlin model in theory and practice:

https://ies.princeton.edu/pdf/S77.pdf

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Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.