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Global Free Trade Makes for Mutual Prosperity and World Peace

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The recent brutal events in France have reminded us how small the world is that we all share. Violence and conflicts that have their origin in one part of the globe shows itself in another part of our planet. And mass media immediately shares those events to the rest of us, no matter where we are.

The impression that is often created by these events and those images is that the world is a dangerous place. And that the more interconnected we become, the more we face the threat of that violence and those conflicts coming our way.

However, the sensationalism of the pictures and videos capturing such tragic events as those in Paris should not distract us from the much more fundamental and everyday linkages that increasingly bind all of us together for mutual prosperity and possible world peace here on Planet Earth.

The Global Economy and Gains from Trade

I mean, of course, the global economy and the network of supplies and demands, productions and consumptions of goods and services that has been and continues to make us one interdependent market of buyers and sellers regardless of the political lines that appear to divide us into different nations and countries in this common world of ours.

For the last two hundred years the increasing integration of our world has, certainly been, been greatly influenced by new, better, and swifter means of travel and communication.

For example, about 160 years ago, in the 1850s, a journey from Boston, Massachusetts to Charleston, South Carolina took about 15 to 16 days of hard riding by stagecoach, or anywhere between 7 and 25 days by sailing ship, depending upon the winds.

Now, in the 21st century, flying nonstop gets you from Boston to Charleston in less than two and a half hours. Air travel enables us, as well, to circumvent the globe in less than twenty-four hours.

But what has been the prime factor behind the develop of trade and its increasingly global nature is a social and economic setting in which individuals are relatively free to peacefully interact in networks of exchange guided by market prices that inform producers and consumers about potential gains from trade.

More and more parts of the world are being drawn into this nexus of international trade, and reaping benefits from it.

South Carolina’s Place in the Global Economy

Let’s take South Carolina, the state in which I now live, as an example of the impact and significance of global trade on people’s livelihood and well being. South Carolina is part of this global economy no less than the rest of the United States.

In 2013, South Carolina industries exported goods to over 200 countries worth more $26 billion, making up nearly 15 percent of the state’s Gross Domestic Product. Charleston, alone, made up $3.5 billion of those export earnings

If 160 years ago, cotton was “king” in export earnings, today, the state’s leading export sectors are automobiles, machinery, rubber, aircraft, plastics, paper and wood products, optics and organic chemicals. Indeed, South Carolina, in 2013, was the number one state in the export of tires, and number two in the export of automobiles to the global market.

Nearly 30 percent of South Carolina’s manufacturing jobs are connected with its export trade. In fact, out of an employed labor force of over two million, more than 500,000, or one-fourth of the total jobs in South Carolina, are connected with exports, imports, and international shipping. Twenty percent of those half-a-million trade related jobs are supplied from foreign direct investment in the state of South Carolina.

Foreign imported goods into South Carolina in 2013 came to over $32 billion, with the largest share of those goods coming into the state arriving from Germany, China, Canada, and Mexico. Nearly 200,000 South Carolinians are employed where foreign, imported goods are sold in the state.

I wish to highlight the import side of South Carolina’s foreign trade because most discussions over the benefits that the state or America as a whole receives from international commerce focuses on the gains in sales and jobs in the export sectors of the state’s economy.

Imports as the Real Gain from Trade

The only real purpose and benefit from “exporting,” however, is its ability to enable us as individuals or a country to earn the financial means to buy “imports” either from our neighbors next door or from sellers on the other side of the globe, who can produce and supply those goods at a lower cost and/or a better quality than if we tried to manufacture them for ourselves.

As Adam Smith expressed it in his famous book, The Wealth of Nations, in 1776:

“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor . . .

“What is prudence is the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better to buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.”

A concern is often expressed that the purchasing of any good or service from the producers of another country deprives domestic businesses and workers of employment.

Imports are Paid for with Exports

But we need to remember that, just like ourselves, the foreign seller does not give his goods away for free. He wishes to sell them precisely in order to earn an income that enables him to, then, turn around and purchase other goods that we or some other country’s producers can make better or less expensively than if he made those goods in his own home country.

When manufacturers in Germany, China, Canada, or Mexico sell some of their goods in South Carolina or some other part of the United States, they earn dollars. Since U.S. dollars are not the currency of use in any of these countries, they will either spend those earned dollars back in the United States demanding American goods in exchange for what they have sold to us, or will sell those dollars on the foreign exchange market for some other currency they wish to use to buy desired goods and services.

If, for example, an export producer in Canada would prefer to buy goods made in Germany than those produced in the U.S., he will sell his earned dollars for Euros. But why would some holder of Euros have sold them for U.S. dollars other than that he, instead, wishes to buy goods made in America or even in South Carolina?

Ultimately, it is goods that trade for goods through the medium of one type of money or another. And what we buy from other countries must, finally, be paid for through part of our own output as individuals and as a nation.

It is true that if American consumers find it more attractive to purchase a foreign version of some product, the domestic American producer(s) may experience declines in their sales, market share, and profitability. Some U.S. firms in this part of the economy may reduce output or even go out of business, with a matching loss of some jobs in this sector of the domestic market.

Those businesses and jobs will have to shift into other areas of enterprise. To where will these businesses and workers “migrate”? Some will find alternative profitability or employment in the export industries with which South Carolina’s and America’s imports are paid.

Imports and Cost-Efficient Trade Improve Our Standard of Living

Others will find new profits and employments satisfying different domestic demands. For instance, suppose that a foreign import costs $10, while the domestic version of this product that Americans or South Carolinians used to buy costs $15. Consumers in America now pay $10 for what used to cost them $15. They have the desired good, plus they have saved $5 on the price. The less expensive foreign product has “freed up” $5 of purchasing power in each consumer’s pocket that now enables them to increase their demand for other things that previously they could not afford when they were paying the higher American-made price for this good.

No doubt, in the short-run this requires some people to change what products they produce or where they are employed. But this is the price of economic progress from which we all gain in the long-run: new, better, and less expensive goods and services available to improve our standard of living as well as the quality of our life.

The fact that more commercial airplanes and automobiles are now manufactured in South Carolina has, no doubt, resulted in the loss of some business and jobs in other states in America where these planes and cars were previously being produced. (Or, if nothing else, a loss of greater business and jobs that might have come to those other states, if factories had not been built in South Carolina, instead.)

But in the long run everyone in America is better off with those planes and cars being produced where they could be manufactured most cost-efficiently to the gain of all of us as consumers. When goods that we, the consumers, want are produced in the most least costly manner, which includes the comparative advantage of the manufacturing location as well, all in society benefit from the resources available to people being used in the ways that enable getting the most out of them that is possible in both physical and value terms.

Finally, I would emphasize another gain from international trade and commerce that goes beyond its more narrowly “economic” benefits to all participants.

Ends in Ourselves, and Means to Each Other’s Ends

I am referring to the fact that trade is a means and a method for people who may live very differently from each other, based on widely diverse beliefs and values, to cooperate and mutually benefit from free and voluntary association.

The nature of the market economy, both domestic and international, is that it leaves each individual and voluntary group free to follow whatever ends, goals or purposes they may find desirable to pursue, given their values and belief-systems. Each serves others in society as the means to their own ends, with little concern or consideration as to why and for what purpose those who fulfill our demands want the income they earn by selling us the goods we desire.

For example, how much do any of us know about those who earn a living making commercial planes or automobiles at the Boeing or BMW factories in South Carolina, and how they use their incomes in their own role as consumers? The answer is, virtually nothing.

In some cases, no doubt, if we knew how some of them spend the income they have earned by producing and selling us automobiles, we would be shocked and disturbed because of, maybe, radically differing views about what values and ends people should pursue in their lives.

But the beauty of the market system is that we use each other as means, while each of us is free to follow the ends that give meaning, purpose and value to our individual lives. Whether a vocal minority or a substantial majority disapproves of how you furnish your home, select your wardrobe, decide on the church to go to, or contribute to some charitable cause, you are at liberty to make your own decisions in these matters as a sovereign consumer in a free market, given your success as a producer in fulfilling and satisfying the ends and goals of others with whose choices you may have no agreement or even respect.

Political Decentralization and Market Freedom Make for Diversity

It is this aspect or element of a, now, global market, that makes for, and even fosters the social and cultural “diversity” about which many often speak, but about which they frequently have little understanding concerning how it is only made possible through a competitive, open, and free market order.

A Muslim in Kuwait who makes his living in his country’s oil fields may use his income to contribute to his mosque and maintain a standard of living for his two-wife family. The American Christian family that drives to church on Sunday with gasoline that has been refined from Kuwaiti crude oil may tithe for significantly different reasons than that Muslim half-way around the world, and consider having more than one wife morally and legally unacceptable.

But each can live his own life as he chooses without a “conflict of visions” about a moral and right life leading to violence and bloodshed between them. What makes this possible at an international level is that fact that we live in a world of global anarchy.

That is, there is no single and unified political authority that controls the world and imposes the political and ideological values of one society on all the rest. It is that decentralization of political power among many governments rather than one global united nation that leaves people free in their international dealings from the values and preferences of others in other parts of the world with which they may disagree.

When governments do not intrude into international trading affairs for either economic or ideological reasons through political or military intervention, there is often the potential for greater peace and mutual harmony than within a country, where different groups and individuals vie for control over their own government to impose their particular values, beliefs and desires on their fellow citizens.

This is why on the mundane, everyday level, the people of South Carolina and those of the United States as a whole are able to trade and associate with the other people of the world through buying and selling, importing and exporting, with all the participants gaining and benefiting from the talents, skills, and specializations of others in faraway places.

All of this happens for everyone’s mutual betterment without having to accept or have imposed on them the values, beliefs and ideals of others in those faraway lands. If we understand this better and leave markets and people free in this manner, there would be a greater chance for both world peace and material and cultural prosperity for all.

(The text is based on a talk given at the Charleston Rotary Club of South Carolina on January 13, 2015.)

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    Dr. Richard M. Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).