Who cares if regulatory and labor costs are artificially high in the US? They are also artificially low elsewhere. And in any event, they are what they are; the question is what does that mean in terms of our industrial policy. Just because in the best of all possible worlds I would deregulate in the United States does not mean that I should be willing to toss my country's fortunes to the wind in a mindless devotion to a theory whose baseline assumptions about the world and its level playing field are incorrect.
Second, if free trade theory rests on the assumptions not only of peace, cooperation, etc. but also on the continuation of the validity of those assumptions well into the future, and if human history has hardly known periods of peace, cooperation, etc., then you do the math. What we have here is an economic theory based on a set of assumptions that rarely exist. That makes the theory somewhat less useful than its strongest proponents are ever likely to admit.
