Gallery of great ideas: Trade

Maybe it was a Neanderthal. Possibly Homo erectus. Conceivably this genius lies farther back in our genus. But at some point somebody decided that the free exchange of goods might be more productive than taking them by force. The latter method is as old as the dinosaurs. A big predator encountered a smaller predator chomping on a tasty morsel of prey. Big predator threatened to make lunch of small predator, which dropped the morsel and skedaddled.

Over time, however, small predators got clever at hiding their morsels. Big predators had to catch their own. Skip forward two hundred million years until a big anthropoid decided to offer something in exchange to a small anthropoid for its morsel. Trade was born. 

However it happened, the discovery of trade marked a milestone in human development. Robbery didn't disappear. It remains with us today. The ad hoc version of forcible expropriation is usually considered a crime. The organized version is classed as war, monopoly or taxation, depending on who's doing the classifying.

But the free exchange of goods was revolutionary. An immediate effect was to reduce robbery and the violence that often accompanies it. You can rob and kill a hunter or farmer and eat today, but you won’t eat tomorrow or next year. If instead you pay and don’t kill the hunter or farmer, you have the beginning of a beautiful friendship. 

By this means, trade expands the group with whom one shares interests. Life before trade wasn’t quite the war of all against all imagined by Thomas Hobbes, but it was more dangerous and chaotic than what life under trade evolved into. Customers and suppliers became allies, each with an incentive to keep the other safe and well. Trade among near neighbors allowed the emergence of cities, in which people could live and work without constant fear for their lives. Trade brought peace where war had been the baseline.

Trade spawned the rule of law. Trade is possible only when traders are secure in their goods and the proceeds therefrom. Societies intent on promoting trade discover the need to suppress robbery, piracy and other affronts to the safety of persons and property.

Most important, trade made people rich. The essence of trade is comparative advantage. I’m better at making arrows than doing anything else. Your skill is brewing beer. The chief aptitude of the person across the street is weaving cloth. So I make the arrows, you brew the beer, and she weaves the cloth, and we trade among ourselves. It’s as though each of us has the highest skill of all three. Multiply this by a dozen, a score, a hundred and we’ve become, in effect, Jacks and Jills of all trades.

Peace, security and prosperity: that’s what people want, and that’s what trade delivers. Few lines in the graph of history are as predictable as that correlating trade with material well-being. The greater the overall trade, the greater the overall prosperity. To cite recent history: the eight decade since 1945 have seen an explosion of world trade and an astonishing reduction in world poverty.

Which might make one think everybody would be in favor of more trade. Not quite. The vast majority of people are in favor of trade—witness the eagerness of consumers everywhere to get their hands on goods made all over the planet. A distinguishing characteristic of trade is that it’s noncompulsory. This is what distinguishes it from robbery. If Americans who profess concern about globalization, for example, wish to reduce American imports, they can begin by simply refusing to buy imported goods. But they don't.

That said, certain producers are harmed by competition from imported goods. This has always been the case. In the early 19th century, Henry Clay advocated protective tariffs to shelter American manufacturers from British competition. In the late 20th century, American automakers sought protection against Japanese imports.

At times the protectionists prevailed. Well organized groups with much at stake can defeat larger groups with diffuse interests. Manufacturers and their employees have preserved their profits and wages at the cost of higher prices to consumers.

A recent broader reversion to protectionism in America, begun by Donald Trump and extended by Joe Biden, has already eaten into American prosperity. The inflation of the 2020s has multiple causes, but one is the new tariffs, which raise prices directly on imported goods and indirectly on American-made goods that now can command higher prices.

The erosion of trade is simultaneously threatening peace. Twenty years ago American presidents spoke of China as an American trade partner. Ten years ago China was described as a trade competitor. Now it's increasingly viewed as an enemy.

The changing attitude is by no means all America’s doing. Under Xi Jinping, China has indeed sometimes acted like a potential enemy.

The economic argument for trade remains unassailable. But economics never exists apart from politics. When governments—American, Chinese or other—turn trade to political ends, the economic argument doesn't always win. Nor should it. It's not unreasonable for Washington to weigh national security in deciding what technology should be sold to foreign powers. Nor is it surprising that Beijing, which considers Taiwan a part of China, looks askance at close commercial ties between Taiwan and the United States.

Even so, American leaders should be careful about fanning the flames of a trade war with China. Trade wars have a tendency to become real wars, as the world's experience with the 1930s and 1940s demonstrated. Tariffs were followed by embargoes, which gave way to armed conflict.

In 1945, following two world wars in three decades, many expected World War III in short order. It never happened, at least not yet. Nuclear weapons had something to do with this. But so did unprecedented levels of world trade. Nuclear disarmament would be reckless for the foreseeable future. So would abandoning the framework of trade that contributed so significantly to peace and prosperity, as trade has from the beginning.

But here the great virtue of trade becomes its weakness. No one can make you trade against your wishes. But neither can you compel anyone else. Without a willing buyer and a willing seller, there’s no trade. And so when either side balks, for good reasons or bad, the benefits of trade are quickly lost.

It was a great idea at the start, eons ago. It still is, if given a chance.