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Friday, June 8, 2018

The Only Difference between International and Domestic Trade Is Geography

The motives for trade, any trade, are the same, regardless of where the participants reside.

Some thoughts on the benefits of international trade from more than a century ago are from Cornell University professor of political economy and finance Frank A. Fetter‘s 1905 textbook The Principles of Economics, With Applications to Practical Problems (emphasis added):

International trade is exchange between individuals, and has the same object as other exchange of goods. The term international trade should not be misunderstood as meaning that nations rather than individuals engage in it. International trade differs from domestic trade only in the fact that the parties are citizens of different sovereign states. Exchanges between men in the same village, between those in neighboring villages, and between those in different countries, are prompted by essentially the same economic motive—the wish to increase the want-gratifying power of goods. In every such case, both parties gain or think they are gaining. The once generally accepted maxim that the gain of one in trade is the loss of another, is rarely applied now except to international trade. The starting point for the consideration of this subject is in this proposition: Foreign trade is carried on by individuals, for individual gain, with the same motives and for the same benefits as are found in other trade.

The main advantage of foreign trade is the same as that of any other exchange. It is hardly necessary to review the explanation here: the increased efficiency of labor when it is applied in the way for which each country is best fitted; the liberation of productive forces for the best uses; the development of special branches of industry with increasing returns; the larger scale production with resulting greater use of machinery and with increased chance of invention; the destruction of local monopolies.

The moral and intellectual gains of foreign commerce were formerly much emphasized. Commerce is an agent of progress; it stimulates the arts and sciences; it creates bonds of common interest; it gives an understanding of foreign peoples and an appreciation of their merits; it raises a commercial and moral barrier to war; and it furthers the ideal of a world federation, the brotherhood of man.

Conversely, protectionism is an agent of stagnation; it retards the arts and sciences; it destroys bonds of common interest; it corrodes the understanding of foreign peoples and appreciation of their merits; it lowers a commercial and moral barrier to war; and it diminishes the ideal of a world federation, the brotherhood of man.

Reprinted from American Enterprise Institute.

  • Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.