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Trade is good for America. This from the Trump administration’s Office of the US Trade Representative sums up the benefits well: “The United States is the world’s largest economy and the largest exporter and importer of goods and services. Trade is critical to America’s prosperity — fueling economic growth, supporting good jobs at home, raising living standards and helping Americans provide for their families with affordable goods and services.”
With apologies to Han Solo in Star Wars: The Force Awakens, “Crazy thing is, it’s true. The faster growth, the higher living standards — all of it. It’s all true.”
And not just for a wealthy, technologically advanced nation like the United States. In the new NBER working paper “Does Trade Reform Promote Economic Growth? A Review of Recent Evidence,” economist Douglas Irwin finds that research shows a big economic impact from freer and open trade for the countries that need it the most. From the paper (bold by me):
Economists have been interested in the relationship between trade restrictions and economic growth since the time of Adam Smith. The great trade reform wave of the late 1980s and early 1990s provides new historical evidence on the matter. There is no one perfect method that can provide decisive evidence on this question, so researchers have tried to understand the
relationship using a variety of approaches.
The findings from recent research have been remarkably consistent. For developing countries that are behind the technological frontier and have significant import restrictions, there appears to be a measurable economic payoff from more liberal trade policies. As table 1 reports, a variety of studies using different measures of policy have found that economic growth is roughly 1.0–1.5 percentage points higher than a benchmark after trade reform. Several studies suggest that this gain cumulated to about 10%–20% higher income after a decade. The effect is heterogeneous across countries, because countries differ in the extent of their reforms and the context in which reform took place.
At a microeconomic level, the gains in industry productivity from reducing tariffs on imported intermediate goods are even more sharply identified. They show up time and again in country after country. Some questions remain about how much of the economic growth following trade reform can be attributed to trade policy changes alone, as other market reforms are sometimes adopted at the same time. Even if the reduction of trade barriers accounts for only a part of the observed increase in growth, however, the cumulative gains from reform appear to be substantial. As Estevadeordal and Taylor (2013, 1689) ask, “Is there any other single policy prescription of the past twenty years that can be argued to have contributed between 15% and 20% to developing country income?”
So a more prosperous world than otherwise, giving trade a definite moral dimension. And this is as it has been for some time. As Robert Tombs writes in “The English and Their History,” regarding the free trade program of 19th century Britain:
From the 1820s onward there developed a visionary program to transform the world by means of free trade — the closest modern England ever came to a national ideology. As a children’s book put it, the aim was that “everybody may … be joined together in love and trade, like one great family; so that we may have no more wicked terrible battles, such as there used to be a long, time ago.”
Over the whole period in which it operated, c.1850 to c.1930, free trade probably made Britain slightly poorer. It meant that no British government could use its economic bargaining power to force other governments to accept free entry of British goods, which in spite of confident hopes of idealists and economists, few ever did. Britain simply allowed free access to its domestic market to all…
It may be that this was done partly due to miscalculation … but there is no doubt that free trade seemed genuinely altruistic and was unconditionally supported by religious groups, the anti-slavery movement, trade unions, women’s associations, and peace campaigners in hopes that all would eventually see the light. The dogma was that commercial freedom would eventually bring political freedom and international harmony, and hence the dissolution of empires, the liberation of serfs and slaves, the end of the “antagonism of race, and creed, and language,” and the abolition of “gigantic armies and great navies” — which states would no longer need, or, in the absence of tariff revenue, would be able to afford.
There were indeed some real benefits. As we have seen, workers got cheaper food. More widely, Britain’s commitment to free trade stimulated world trade for more than half a century. … Free traders were universalistic; all mankind was morally and intellectually the same, human values were transnational, racial and ethnic differences were irrelevant, and civilization and progress were the right and destiny of all. … [After the Great Exhibition of 1851], Manchester cotton merchant, Absolom Watkin, noted in his diary: “Our country is, no doubt, in a most happy and prosperous states. Free trade, peace, freedom. Oh happy England.”
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