A Torrent of Free Trade

Story Highlights:

• This week saw a flurry of favorable action for free trade as the White House pressed forward with three deals, South Korea and the European Union finalized a pact, and an agreement between India and Japan gained steam.
• Protectionist rhetoric often surfaces—but ignores the ramifications of protectionism in today’s increasingly interconnected global economy.
• Expect the positive forces of free trade to continue to be a key contributor to worldwide economic growth.

This week saw a flurry of favorable action for free trade. Wednesday, the White House announced it was prepared to move forward and seek congressional approval of free trade deals with Colombia, South Korea, and Panama—a notable development we applaud. South Korea’s parliament passed a free trade agreement with the European Union, setting the stage to ratify a still-pending deal with the United States. And it seems South Korea may have more free trade deals ahead—at a recent summit in Seoul, representatives discussed a potential deal with China. Also worth noting—India and Japan’s Comprehensive Economic Partnership Agreement (signed in February) is picking up steam. The Japanese parliament is set to ratify the agreement before the end of June.

This flurry of trade barrier demolition is bound to raise the ire of protectionists. And as we’ve previously discussed, protectionism doesn’t really protect anything—it harms trade and wealth, decreases competition, increases consumer prices, and strains international relations.

It seems odd to us that most folks can appreciate the golden rule (“Do unto others as you would have done to you.”) in daily life, yet protectionists seemingly think it doesn’t apply to international trade. Well, it does. (Don’t believe us? See how the world responded to the US’s 1930 Smoot-Hawley tariffs—a major contributor to the Great Depression.) So today’s global movement toward free trade is more than a welcome development in our view.

The benefits of freer trade worldwide can’t be emphasized enough:

• It sets the stage for increased global trade—for both imports and exports across all countries.
• US domestic companies are able to export more products abroad, unencumbered by tariffs, taxes, or other restrictions.
• Exporters are able to harness economies of scale, lower costs, and fatten profit margins.
• Importers are able to bring more goods to the US market more cheaply, increasing consumers’ choices and lowering prices.

Some companies will likely lose—true of any competitive market—but in the long run, the benefits far outweigh the costs. A perfect example of the global benefits of freer trade has been the growth of Emerging Markets in the last decade. As Emerging Markets have grown, they’ve spent more on infrastructure and a new middle class of consumers with disposable income has emerged too—increasing import consumption. These two forces, among others, have provided a solid boost for the developed world through international trade—and that seems poised to continue.

Today, many folks’ view of the distant future is skewed by their perception of negative factors (for example, long-term projections of debt or the supposed death of US manufacturing). But when considering both the near- and long-term future, it’s a mistake to leave out powerful positive forces contributing to make the world economically bigger, better, and wealthier than ever before. Free trade policies worldwide aren’t solely responsible for that of course, but they’re a key contributor, enabling growth to stretch across political boundaries.