The Benefits of free trade

Free trade benefits all of the countries that embrace it. It creates jobs and prosperity. It raises Gross Domestic Product growth. It reduces inflation, benefits consumers, and improves a nation’s overall standard of living. Perhaps most important, free trade promotes peace and encourages harmony and understanding among the nations of the globe.

Although the proponents of trade protectionism often argue that free trade destroys American jobs, in reality, the exact opposite is true: Free trade actually accelerates job creation in an ever expanding macro-economic environment. When President Bill Clinton ratified the North American Free Trade Agreement, ardent protectionists fretted over the enormous loss of jobs that allegedly would spill across the border over into Mexico, where wages tended to be substantially lower. However, if this contention were actually true, Mexico would then have a lower unemployment rate than the United States, since–as the protectionist argument goes–most of the jobs would go to the least costly region, where production costs would be lower and profits commensurately higher. We know, of course, that this has not been the case. At 4.2 percent, the American unemployment rate remains at the lowest level in 30 years.

While it is certainly true that competitive free trade does deprive some Americans of their jobs, free trade as a whole offers a net surplus of employment opportunities to most Americans. That is to say, for every job that is taken away through competitive free trade and free enterprise, other jobs are created in other, more competitive domestic industries. According to the CATO Institute, for example, “while the steel industry reduced its workforce by 10,000 in 1998, the rest of the American economy was creating 2.5 million net new jobs.” This meant that for every steel job that was eradicated, 250 net new jobs were created in other sectors of the growing American economy.

In addition to creating enormous employment opportunities, free trade also brings the added benefit of reducing a nation’s rate of inflation. This is accomplished through the basic economic principle known as “comparative advantage.” Comparative advantage lowers the cost of consumer goods by allowing each trading nation to capitalize on its most formidable areas of production. For example, if Columbia can produce a higher quality agricultural product (say, coffee) at a lower price than the United States of America, then the U.S. would be wise to import its coffee exclusively from Columbia, instead of attempting to produce the product for itself, rather inefficiently and much more costly.

By dramatically expanding employment opportunities and significantly reducing the threat of inflation, free trade benefits both the worker and the consumer. In so doing, it puts wages in the hands of the productive working man, enabling him to have purchasing power by which to purchase the best and least expensive goods imported from around the world. When workers are employed and inflation is subdued, the economy thrives, productivity rises, and prosperity ensues. As a result, more money–more goods and services–flows throughout the nation’s economy in such a manner as to raise both overall living standards and Gross Domestic Product growth.

Finally, free trade promotes peace, harmony and understanding among nations. It accomplishes this by creating a vital interdependence between, or among, nation states. Countries engaged in constant cross border trade soon become entirely dependent upon each other for basic economic necessities or commodities. Consequently, when Country A needs to import computer chips from Country B in order to deploy smart bombs against country B, the pressures for war considerably diminishes, for obvious reasons. A country simply cannot easily wage war against a country that supplies it with a substantial amount of goods and services.