International Trade

April 15, 2016

Recent discussions of international trade – specifically around the UK steel industry, and Bernie Sanders’ recent trade proposals – made me want to articulate some extremely basic points about international trade. I’m going to distinguish three different arguments about international trade, painted here with the broadest of possible brush strokes.

1) The traditional liberal gains-from-trade argument. Efficiency gains from the division of labour, and from comparative advantage, mean that international trade can produce greater overall social wealth and welfare than the same resources would generate if nation states did not trade. In this respect, international trade brings benefits to everyone.

2) The third-worldist critique of international trade. From this perspective, international trade is a mechanism for extracting wealth from the world’s poorest and least powerful nations, and channeling that wealth to the world’s richest and most powerful nations. This is the case in both the historical colonial domination of the periphery by the core, and contemporary neo-colonial relationships. In this respect, international trade benefits the core at the expense of the periphery.

3) The labour-aristocracy critique of international trade. From this perspective, international trade weakens the bargaining power of labour in the core, by outsourcing jobs and production to the periphery. In this respect, international trade brings benefits to countries in the periphery, at the expense of workers in the core.

All three of these arguments are common. In my opinion, all of them capture important dimensions of the international trade. That is to say, in my opinion, it’s a mistake to deny any of the following: 1) international trade can bring aggregate economic benefits via specialisation and the division of labour; 2) international trade can extract the resources of the periphery to the benefit of the core; 3) international trade can outsource production and diminish workers’ bargaining power in the core, to the benefit of the periphery.

The question, then, in my opinion, is where and when these different elements of international trade occur. This is clearly a complicated empirical question – and much more complicated than the above typology suggests. Still, I think that debates over international trade would benefit if all parties made the specific case for their emphasis, among these three perspectives – and for the consequences of their preferred policies on all three of the dimensions listed above.