TOPICS: Free trade essential for world peace

Protectionists believe that consumers who buy goods and services from foreigners cause domestic employment and wages to fall. Economists since before Adam Smith have shown that this belief is mistaken, largely because foreigners sell things to us only because they either want to buy things from us or invest in our economy. These activities employ workers here at home and raise their wages.

Mountains of empirical evidence show that protectionism is economically destructive. The facts also show that protectionism is inconsistent with a desire for peace. Back in 1748, Baron de Montesquieu observed that “Peace is the natural effect of trade. Two nations who differ with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and thus their union is founded on their mutual necessities.” If Montesquieu is correct that trade promotes peace, and then protectionism — a retreat from open trade — raises the chances of war.

Solomon Polachek, an economist at the State University of New York at Binghamton, has researched the relationship between trade and peace. In his most recent paper on the topic his team reviews the massive amount of research on trade, war, and peace. They find that “the overwhelming evidence indicates that trade reduces conflict.” Columbia University political scientist Erik Gartzke reaches a similar conclusion: Peace is fostered by economic freedom. Economic freedom includes also low and transparent rates of taxation, the easy ability of entrepreneurs to start new businesses, the lightness of regulations on labour, product, and credit markets, ready access to sound money, and other factors that encourage the resource allocation by markets.

Democratic institutions are heavily concentrated in countries that also have strong protections for private property rights, openness to foreign commerce, and other features broadly consistent with capitalism. That’s why the observation that any two democracies are quite unlikely to go to war against each other might reflect the consequences of capitalism more than democracy. Polachek and Seiglie find that openness to trade is much more effective at encouraging peace than is democracy per se. Similarly, Gartzke discovered that, “when measures of both economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict.”

By promoting prosperity, economic freedom gives people a stake in peace. This prosperity is threatened during wars. War gives government more control over resources and imposes burdens of higher taxes and higher inflation. When commerce reaches across political borders, the peace-promoting effects of economic freedom intensify. Why? It’s bad for the bottom line to shoot your customers or your suppliers, so the more you trade with foreigners the less likely you are to seek, or even to tolerate, harm to these foreigners. — The Christian Science Monitor