Many worry about international trade and the increased competition to which it leads, while overlooking trade’s incredible benefits. In a refreshing Wall Street Journal article, the founder and CEO of FedEx, Fred Smith, reflects on how trade and deregulation have improved American living standards over the course of his lifetime. He recalls how many luxuries enjoyed by few during his youth plummeted in price and became accessible to more people than ever before.
“Foreign travel was exotic, expensive and rare among the population as a whole” during the 1960s, Smith reminds us. Industry deregulation and international Open Skies agreements changed that. “Long-distance telephone calls were expensive, international calls prohibitively so,” and cell phones did not even exist yet. “From furniture to TVs and appliances, and especially automobiles, American brands dominated consumer spending” across the United States, and were often out of reach to the less affluent. Then trade worked its magic:
[Trade] has rewarded Western consumers with low-cost products that have substantially improved standards of living. [Today] Americans and Europeans don’t need to be affluent to afford cell phones, digital TVs, furniture and appliances.
The moral of Smith’s story is clear: competition, which trade and deregulation facilitate, has an extraordinary tendency to enhance efficiency and bring down prices.
As we have documented, the falling cost of living improves the lives of ordinary people irrespective of how fast incomes rise. The few areas where costs have gone up instead of down—education, housing, and healthcare—have been subject to severe market distortions. Subjecting education, housing, and healthcare to more competition could have salutary results. Falling cosmetic procedure prices, for example, provide insight into how deregulated healthcare might affect healthcare costs.
Smith’s article also recounts how increased competition has helped to move technology forward. Technology, in turn, has furthered expansion of trade—a virtuous cycle:
During the 1970s and 1980s, while container ships and planes became increasingly efficient with each successive model, newly developed fiber-optic cables (patented in 1966) began running underseas, connecting the world at the speed of light, lowering voice and data-communication costs by orders of magnitude. Financial markets became globally integrated and transactions multiplied at an astounding rate.
In addition to improving lives in the United States, trade has also helped lift billions of people out of extreme poverty around the world, notably in East Asia.
While the vast majority of Americans are made better off by trade, that is of small comfort to those working in industries that are having trouble competing with the rest of the world. Their disappointment contributes to the popularity of anti-trade political figures like Donald Trump and Bernie Sanders.
It is important to acknowledge the “destructive” part of “creative destruction”—and trade contributes to creative destruction—but also to put trade in a proper perspective. The positives markedly outweigh the negatives. As Fred Smith concludes:
More than three billion people are now connected to the Internet. Billions more have aspirations for a better life and are likely to come online as global consumers. The odds are good, therefore, that today’s remarkable transport systems and technologies will continue to improve and facilitate an even larger global economy as individual trade is becoming almost “frictionless.”
History shows that trade made easy, affordable and fast—political obstacles notwithstanding—always begets more trade, more jobs, more prosperity. From clipper ships to the computer age, despite economic cycles, conflict and shifting demographics, humans have demonstrated an innate desire to travel and trade. Given this, the future is unlikely to diverge from the arc of the past.