Is international trade negative?

Oct 15, 2022 - 08:55
Oct 25, 2022 - 12:39
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Is international trade negative?

When looking at the world through a narrow lens, one could argue that global trade has negative implications due to the unfair imbalances created between developed and developing nations. However, despite these imbalances, it is important to recognize that global trade has undoubtedly led to positive growth and wealth creation for the world’s population as a whole. While it is true that initially poorer nations export their low-value goods and commodities to richer countries who profit disproportionately, over time their population benefits as their economy moves up the value chain. This cycle is supported by examples such as the case of Japan, Taiwan, and China. 

Japan is a prime example of the transformational effects free trade can have on the economic prosperity for a developing nation. After the second world war, Japan had a very weak economy and an underutilized labor force. Japan’s factories exported low value-added goods that were inexpensive for the US consumer and other developed nations which took advantage of their low-cost labor. In the following decades, Japan began improving the quality of its products, exporting higher-value goods to the US with improved profit margins. Eventually, Japanese companies started becoming more profitable and rose to prominence as world leaders in various sectors, gaining market share from developed nations. Immense profits generated by Japanese companies resulted in higher wages for workers that increased tax revenue for the government, leading to more infrastructure and domestic investments that improved the nation’s overall social welfare. 


This evolution did not solely benefit Japan, it was beneficial for American and European consumers as well. In addition to lowering consumer good prices, multinational competition forced corporate entities in developed nations to innovate in order to maintain market share. For instance, the “Big Three” automotive companies Ford, Chrysler, and GM, allowed their quality to decrease, turning their back on innovation and fuel efficiency. Competition from Japan drove technical advancements in many core industries strengthening the US economy overall. The auto sector began producing vehicles with lower carbon emissions that resulted in a reduction in greenhouse gases. This evolution clearly demonstrated the positive impacts of international trade for not only global growth and wealth but also for the environment in developed nations. While the prosperity generated from Japan’s export success lifted the nation’s economy, in the end, it also worked against them. The progression that improved the quality of Japanese products also led to an increase in prices and wages for their workers. As an unintended consequence, Japan lost the competitive advantage of low labor costs resulting in a manufacturing shift to other low-cost regions such as Taiwan and China. 


Following Japan’s trajectory, Taiwan started off exporting low value-added goods to developed economies with weak profit margins. Once again this trade disproportionately benefited rich nations who incorporated Taiwan’s inexpensive goods into their profitable finished products. Over time their economy advanced moving from low tech to high tech manufacturing with expanding margins. Today Taiwan is well regarded as a global leader in semiconductor manufacturing. However, just as before this economic success increased the nation’s labor costs harming their comparative advantage for low value-added goods. The cyclical pattern continued as the developing world’s interest shifted towards other low-cost regions such as China and Vietnam. During the last decade, the succession continued even further pushing manufacturing to poorest regions such as Myanmar and Cambodia propelling them into the wheel of global economic development exploiting their population’s modest wage base.

Analyzing historical data on the macro trends in Japan, Taiwan and China there is clear evidence of improvements in GDP per capita, protein consumption, literacy rates, and life expectancy. While the initial cost of entry to the global market may be inequitable, the enhanced social welfare for developing nations demonstrates that the benefits of trade can be both positive and inclusive in the long term. The argument that global trade has had a negative impact oversimplifies the complex dynamics of interconnected world trade. Looking at a single aspect, it is easy to misinterpret the overall benefits of modern trade for the world’s population. 

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