2/7 If this isn't too much of an oversimplification, a rational trade policy could easily address both issues. The purpose of such a policy would not be to protect specific sectors except to the extent that they have national security implications.

3/7 It would be simply to ensure broadly balanced trade. Once trade is balanced, after all, countries cannot run surpluses to externalize the costs of their domestic policies. For example if a country chooses to become globally competitive in a particular sector, perhaps in...

4/7 order to generate more jobs, by tolerating greater environmental degradation, its increased competitiveness in that sector would come at the expense of its other tradable-goods sectors, and not at the expense of the tradable goods sectors of its a trade partners.

5/7 Each country could choose whatever policies it preferred, but because it would not be able externalize their costs, it would be much more difficult for it to choose policies that are collectively bad for the global economy but individually good for those that implements them.

6/7 Environmental degradation is a classic case of such a policy. The one who does it gets most of the benefits of the policy, but shares the cost with others. In that case it is not surprising that a policy that is broadly harmful nonetheless makes sense for the individual.

7/7 That's why the rules of the global trade regime should not be specific enough to prevent countries from pursuing their own policies, but broad enough to prevent countries from externalizing the domestic costs of those policies. This is what Keynes argued for at Bretton Woods.