The global economy is recovering partly because we've ignored the cries of protectionists.
No nation was ever ruined by trade -- Benjamin Franklin
Trade is the lifeblood of our economy. If it wasn't for trade we'd have to grow our own food, collect water from the rivers and even act as our own police. Now this may have been the height of sophistication in the 9th century but I seriously doubt that anyone reading this, short of a survivalist, would want to live in this type of world.
Countries prosper through trade, just as many people prosper by selling their labour to an employer (another form of trade). Unfortunately trade has many enemies, vested interests who wish to be protected from competition. History tells us that all too often producer interests trump the interests of consumers because they shout louder and have the ears of politicians thanks to their campaign donations.
If you look closely at the origin of the goods you consume you may be surprised at how much comes from overseas trade. For example, I'm typing this article on a computer which was assembled in Korea and runs American software on Taiwanese microprocessors. My breakfast and lunch mostly come from Britain and France whilst my coffee is Colombian.
My shoes were made in Thailand, my motorcycle is German and I'm listening to British music on a CD player that was designed in Japan, uses Dutch technology but was made in China. This evening I'll be watching an American film which mostly stars British actors and was made in the Czech Republic (whilst drinking Belgian beer).
Trade is good for us!
Trade rebuilt the world
By the end of the Second World War the economies of many countries had been completely wrecked, in particular Germany, Japan and several South-East Asian states. But these nations prospered in the following decades thanks to policies such as the Marshall Plan, hard work as well as being dedicated to trade. In the 1950s the slogan "Made in Japan" meant cheap tat; since the 1980s it has been a badge of quality.
But many countries which appear to be open to trade are really only open in one direction. They're happy to sell you their goods but impose all manner of burdens if you try to sell to them. Japan used to be notorious for imposing arbitrary restrictions upon imports; today this mantle has been taken up by China.
Any country which restricts imports is taking wealth from its domestic consumers and giving it to its producers. China takes this one step further by subsidising overseas consumers because its policy of maintaining an artificially low currency means that the price they pay for Chinese imports is much lower if China's currency floated freely.
Free trade works. Managed trade can work up to a point (the history of Mercantilism tells us that it invariably ends up in tears). Much of what passes for trade doesn't.
No trade, no gain
Since the Second World War Africa has failed to prosper to anything like the same extent as the South-East Asian tiger economies. African countries have many problems, including the lingering effects of decolonization, despotism, corruption and civil wars, but most South East Asian countries have suffered similarly yet many have still managed to prosper even if they have not completely overcome these problems.
African economies' main exports are agricultural produce, metals and minerals. Unfortunately the world trade system acts against them because it ensures that most of the higher value-added processing work associated with these products will performed outside Africa, so much of the wealth is captured elsewhere.
For example, West African countries produce about 75% of the world's cocoa yet high taxes on African chocolate means that the vast majority of cocoa processing and chocolate production takes place in Europe and America.
African countries are also notorious for imposing internal trade barriers which harms domestic consumers. As Hillary Clinton recently pointed out, tariffs, taxes and corruption slow trade, scare away investment and thus harm African countries.
Of course, when an African country attacks corruption, remove internal trade barriers, secure property rights and upholds the rule of law, that's good news for that country's consumers as well as overseas investors.
Trade 3 Global Depression 0
The old saying that "when America sneezes the world catches a cold" has a lot of truth in it, so when the American banking crisis struck in 2008 many pundits expected that the world would enter a global depression comparable to that of the 1930s.
There are several reasons why this didn't happen, all of which were the result of central bankers and politicians having learnt from history (for once!) and made sure that they avoided making the same mistakes.
The Great Depression wasn't just caused by the insane policy of governments raising interest rates and restricting the money supply during an economic downturn, it was the hammering that international trade took when countries raised import duties, imposed quotas or even banned imports. America's Smoot-Hawley Tariff Act of 1930 was one of the most lethal pieces of anti-trade legislation ever passed and in the five years to 1934 protectionism meant that international trade fell by more than two-thirds.
Naturally countries cried foul when their goods were stopped by other countries' trade barriers, but the policy of "beggar thy neighbour" continued until enough people realised that it wasn't working. In 2009 the cries of protectionism were largely ignored and the world recovered.
The idea that countries can do better by producing everything by themselves is something that needs to be consigned to the history books. If it was true then Myanmar and North Korea would be roaring successes and we'd be flocking to invest there!
Trade works. Give it a chance.
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