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November 20, 2006
Trade Promotes Peace
Don Boudreaux
If you want peace, work for free trade -- so I argue in today's Christian Science Monitor. Here's the gist:
Back in 1748, Baron de Montesquieu observed that "Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities."
If Mr. Montesquieu is correct that trade promotes peace, then protectionism - a retreat from open trade - raises the chances of war.
Plenty of empirical evidence confirms the wisdom of Montesquieu's insight: Trade does indeed promote peace.
During the past 30 years, Solomon Polachek, an economist at the State University of New York at Binghamton, has researched the relationship between trade and peace. In his most recent paper on the topic, he and co-author Carlos Seiglie of Rutgers University review the massive amount of research on trade, war, and peace.
They find that "the overwhelming evidence indicates that trade reduces conflict." Likewise for foreign investment. The greater the amounts that foreigners invest in the United States, or the more that Americans invest abroad, the lower is the likelihood of war between America and those countries with which it has investment relationships.
Professors Polachek and Seiglie conclude that, "The policy implication of our finding is that further international cooperation in reducing barriers to both trade and capital flows can promote a more peaceful world."
Here's a link to the paper by Polachek and Seiglie.
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Comments
Thomas PM Barnett has laid this all out nicely in 2 books, The Pentagon's New Map and A Blueprint for Action. But, instead of trade, he calls it "connectivity" - not just trade, but people flowing back and forth (travelling for leisure/business, migration) and information (news, movies, music, etc.).
Posted by: Ad | Nov 20, 2006 9:34:02 AM
"If trade promotes peace, then protectionism raises the chances of war..."
Isn't that like saying:
If P then Q. If ~P, then ~Q.
And that doesn't sound right...
Posted by: James | Nov 20, 2006 10:15:43 AM
I think that the idea is a solid one, but the old correlation does not prove causation problem rears its uglyu head. It could also be a self selction problem in that nations that like each other are as likely to trade with each other as trading partners are to like each other...
Posted by: Isaac Crawford | Nov 20, 2006 10:16:19 AM
Trade definitely promotes peace. When your well being partly relies on another person, it is in your best interest to ensure that person is not harmed. I have always thought that the current peace process in the Middle East is a waste of time. Instead of concentrating on meaningless border lines and territories, everyone in the Middle East should concentrate on improving trade.
Posted by: Vincent Clement | Nov 20, 2006 10:18:39 AM
My gripe is not with the argument, but with an adjunct: because much of the violent strife in the world is caused by stateless organizations, trade might not reduce the most dangerous interactions in this day and age.
Posted by: quickly | Nov 20, 2006 11:45:39 AM
If you want "Free Trade" to work you must have "Fair Trade".
Without "Fair Trade" you will have auto manufacturers moving from Ohio and Michigan to Ontario Canada where the Canadian Government has single payer health insurance.
With "Free Trade" without "Fair Trade" results in agricultural products being dumped into Latin America displacing millions of Latin American workers who are forced to seek work legally or illegally in the United States.
Posted by: Thomasina | Nov 20, 2006 12:04:00 PM
My only coment is that nations or regions do not trade among themselves. Individuals trade among themselves.
Posted by: Luis Figueroa | Nov 20, 2006 12:25:52 PM
Vincent,
I agree. But it also raises the question of cause and effect. Does trade bring peace or does peace bring trade? Perhaps the issue would be more accurately framed as one of trust.
Quickly,
Violent stateless organizations, while frightening to the inhabitants of a relatively peaceful world, are nowhere near as dangerous as violent state actors. The threat isn't that some radical group is going to build a nuke in the garage, but that a radical state may give them one.
Thomasina,
In the business world, "fair" means in accordance with the agreement between buyer and seller. If I, Walmart, a foreign manufacturer, and the employees of a foreign manufacturer, all agree to the terms of our respective transactions, then the arrangement is entirely fair. The opinions of non-transactors are irrelevant.
Posted by: Randy | Nov 20, 2006 12:29:13 PM
How's this for fair: "I want to get paid more, so the government should tax anything that comes from competitors that get paid less than me. That way we'll have the same market price, but I'll get paid more than the other guy because I have less taxes on my stuff."
Any model of competition that relies on being favored by the tax code strikes me as weaselish at best, downright evil at worst. And that's before considering the fact that it absolutely will make us poorer as a country than free trade would.
Posted by: Istaran | Nov 20, 2006 2:02:09 PM
Thomasina
The basic idea that high companies will go wherever some single measure like health benefits is most favorable is usually wrong. The reason is that there are trade-offs. For example, high tax economies can compete with low tax economies for business provided those high taxes are spent on infrastructure and benefits for workers.
Posted by: ben | Nov 20, 2006 2:07:11 PM
What's that great Bastiat line on this subject? Something like "If goods don't cross borders, armies will."
Posted by: anon | Nov 20, 2006 2:34:39 PM
I love it. I've always wondered the same. It raises the risks / costs of war. Plus the more interaction you have between people of the countries you'd think they'd be less prone to vilify the other side.
Posted by: Allen | Nov 20, 2006 2:44:33 PM
Thomasina -
We must remember that jobs alone are not the key to economic success. If the Canadian government would like to lower the average price that Americans must pay for autos, they are attempting to give themselves a comparative advantage in auto production. This may not be the case in a free world, but we must take the situation as fact and allow people to pursue their comparative advantage in order to maximise wealth. Canadians should be complaining over this, not Americans. Canadians bear the cost of subsidizing production which is misallocating resources to give them this comparative advantage. We did not cry over the buggy-whip maker's services no longer being needed. Instead, we celebrated when he could be used in newer lines of production.
Dumping into the developing world does create problems, but we would be better off at attacking the source of the problems. When certain lines of production and farming are given subsidies or special treatment over others, farmers not longer diversify their crops to protect against these temporary shocks, instead prefering the extra-ordinary gains from specific lines of production. By eliminating these distortions in developing countries they can protect themselves without resorting to protectionist policies that often include large amounts of deadweight loss.
I may seem to be contracting myself in advocating nothing in one case and change in another, but I am working from the position of maximizing wealth in the US in one and in the latin american countries in the other. If we are trying to maximize global wealth the case may be different.
Posted by: Carl Marks | Nov 20, 2006 3:41:51 PM
Thomasina,
Having the government provide healthcare does _not_ make a company more competitive. Workers are compensated at approximately their marginal productivity. If the cost of the worker goes down because the company no longer needs to provide healthcare benefits, their wages will go up to compensate due to competition among companies for workers. The only way it would help companies is if the supply of workers increased because of the change. No evidence has been provided on this point.
Posted by: Stephen | Nov 20, 2006 4:25:34 PM
Let's analyze the logical construction.
Observed that: free trade promotes peace, or, stated differently, free trade discourages war. P implies Q.
The only conclusion you can draw from this is that the absence of free trade (called protectionism) does nothing to discourage war.
Posted by: James Pyrich | Nov 20, 2006 5:30:01 PM
The two statements, "When it rains, the road gets wet," and "it never rains in Gobi" can be combined to conclude that a given road in Gobi is more likely -- but not guaranteed -- to be dry.
Likewise, if trade promotes peace, and two countries trade, their relationship is more likely -- but not guaranteed -- to be peaceful.
It's probably also a gradual correlation, not a binary one.
Posted by: Henri Hein | Nov 20, 2006 9:34:31 PM
From my understanding of Ontario business taxes, it is one of the highest in the developed world. So, as my Public Policy professor argued, while we do have very high taxes, they are compensated (somewhat) by our medical system because Ontarians pay for it.
Posted by: Paul Barnes | Nov 21, 2006 2:41:07 AM
Thomasina,
I am just a little bit confused on how a subsidized market can be classified as "'free trade' without 'fair trade'". A subsidized agricultural market adds constraints and limits the 'free' in the in that market, so I found your reply somewhat confusing. Two thoughts struck me as I read your reply: first one was that people who use the term 'fair trade' generally enjoy interference in the markets such as subsidies, tariffs, quotas, and outright bans. The second thought was -- and this question has been with me far longer than your reply -- just what is 'fair trade' anyway, if free trade is the voluntary exchange of goods between two or more parties? Is the 'fairness' with a little less 'voluntary' mixed in or maybe an extra party added in, say like government, who will take a some value away (while adding relatively nothing)from each party envolved in the transaction?
Posted by: Lowcountryjoe | Nov 21, 2006 6:09:38 AM
No matter how you wave the flag and sugar-coat the words, "fair trade" means subsidy; you pay for something whether you buy it or not.
The consumer has the negotiation taken out of his hands. It's the very opposite of free trade.
Posted by: True_Liberal | Nov 21, 2006 9:18:52 AM
Two observations: the idea in the original post is not dissimilar to Thomas Friedman's idea that "no two countries that have McDonald's restaurants have had a war." While I've not checked the accuracy of that lately, I think the surface argument makes sense. Markets make conflict more difficult.
I am also reminded of a book I read many years ago about the days between the assassination of the Austrian Archduke Ferdinand and the opening of World War I. I remember being struck by the author's description of how the Western Powers dragged their political feet as the moved towards war, largely because of pressure from financial interests to give time to disengage. I wish I could remember the title/author.
Posted by: Tim | Nov 21, 2006 10:43:13 AM
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