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The Importance of International Trade

In a recent blog, Lower Retail Import Levels Fuel Debate: Free Trade vs. Protectionism, it was discussed whether or not international trade was important. Looming trade wars, other external threats, and worry over protecting American jobs and interests can cause readers concern about whether or not the United States (or any nation) should be participating in international trade. Some think that the U.S. should simply build and develop its own resources internally. That argument can be settled relatively easily. For the United States, it is so valuable that founding father, Thomas Jefferson, wrote in the Declaration of Independence a major grievance against Great Britain was “cutting off our trade with all parts of the world.” International trade is essential to the world economy – each nation trading its goods and services with each other is able to make them all stronger than they would be able to alone.

Grows Jobs and Businesses

Protectionists often warn that trading internationally will send U.S. jobs overseas and leave American workers hanging out to dry. One thing that protectionists fail to see is that international trade promotes job growth in foreign and domestic nations alike. According to the U.S. Chamber of Commerce, more than 41 million American jobs are supported by international trade. Studies like the Heritage Foundation’s Index of Economic Freedom say that more than half of the United States’ imports come in the form of raw materials or intermediate products that U.S. workers build or assemble into finished goods. If companies could not get these lower cost inputs, they would not be able to hire as many workers.

Contrary to protectionist views, there is a correlation between international trade and employment rates. According to the Heritage Foundation, in 2008-09, the U.S. decreased its trade deficit with other nations, and increased its unemployment rate from 5.8 percent to 9.3 percent. Inversely, from 2009-14 the U.S. trade deficit increased but the unemployment fell from 9.3 percent to 6.2 percent. So, even though the U.S. imported more than it exported, the imports produced American jobs. The exact same manufacturing or production jobs may not be available than would be if America did not participate in international trade, but new, innovative job opportunities open up.

International trade also promotes business growth. According to the U.S. Department of Commerce, approximately 300,000 small and medium sized business export products and services outside the U.S. These businesses make up more than a third of the U.S. exports and the number of these businesses has grown three times in the past twenty years. Allowing free and open international trade allows more companies like these to enter the market and gives them the chance to sell their products globally as well.

Grows and Strengthen Markets

Another benefit of international trade is that it fuels competition, innovation, and economies of scale.

Competition – Each nation has strengths in terms of resources like labor, materials, or knowledge, and they all can compete together in the world market for other nations’ business. Once a nation reaches peak efficiency and effectiveness, they develop a comparative advantage to other nations and will specialize in a product or service until they are the best. That is when everyone wins.

Consumers are able to purchase from more options, and sellers compete for the business by making the best products and services the most efficiently. Prohibiting international trade keeps sellers from entering the market and does not incentivize the other nations to produce the best that they can. The competition is vital for nations to grow, expand, and innovate their processes to produce the best goods and services possible.

Innovation is a key tenet of competition. Trade gives nations reasons to discover new ways to produce goods and services better, more cheaply, and more quickly. Countries that only rely on themselves close themselves off from new developments the rest of the world has to offer.

As discussed earlier, international trade promotes job innovation. Protectionists are often concerned that the same jobs are not available that once were, and that is true – new industries often replace the old ones. A popular example is that in modern America, there is an abundance of car manufacturers and a minority of Conestoga wagon makers – whereas in the 1800s this would not have been the case. Companies like Samsung create new Blu-ray players and not as many VHS players (or, more likely, none at all). As trade progresses, new technology is developed. Innovation is ignited and better products are available – in greater numbers. With international trade, those innovations reach more people who also must innovate to get ahead. The consumer is able to win by getting the best products at the best price available.

Economies of Scale – Nations that participate in international trade are able to develop and strengthen economies of scale for their products and services. When a nation has the entire globe to trade with, rather than just its people alone, the marketplace (and subsequent demand) is larger. More consumers will want a product or service and nations can lower prices. The more products and services nations can provide, the cheaper those products and service can be. That is because the costs can be spread over more products and drive down the price per unit.

Global Growth and Economic Development

Lastly, international trade is important for nations to develop their own natural resources and to participate in the global economy.

Countries can only use so much of any given product. Americans, for example, are not able to consume all of the crops it grows each year. According to the American Farm Bureau Federation, one in three acres of farms are planted for export. One third of U.S. agriculture is grown to sell to other countries. The same is true for other nations. Each can produce a good or service but cannot use it all themselves. That is why international trade is essential. It allows countries to turn “unneeded” resources into money or other “needed” resources.

Participating in the global economy not only allows consumers to receive goods and services at the best prices; it also is an essential part of a nation relating to other nations on a sovereign basis. Countries requires interaction with one another to be recognized by the international community, and the most peaceful way is trade. International trade shows a commitment to being a part of the international community and a resolution to working with other nations in a peaceful and reasonable way.

International trade is the basis of many economies such as the United States. It is in the American spirit. Free trade and enterprise fuel competition, innovation, and economies of scale so that consumers worldwide can get the best products for the best prices. Protectionist views try to build up industry by removing consumer choices, but they fail to see how that philosophy stagnates prosperity. When nations isolate themselves, they confine themselves to only what they have on hand – the labor, resources, and finished goods. Working together, especially in international trade, allows each countries’ efforts to synergize and make them all stronger than they would be alone.

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