A Comparison Between a Trading Nation and a Free Trade Nation
A trading nation is a nation in which international trade constitutes a high percentage of its gross domestic product. Unlike a manufacturing nation, a trading nation derives most of its revenue from foreign trade. Many nations around the world have become more open to foreign trade in recent years. However, this trend has been met with resistance from developing nations who fear that increased foreign investment will push down the cost of goods they sell. Developed nations worry about losing their competitive edge and being overtaken by the richer East Asia.
Developed nations often complain that their unfair advantage is holding back the flow of global trade. As China becomes the largest trading nation in the world, the United States, along with all of its allies, is working hard to reduce its trade deficit with China in particular. While China is by far the largest merchandise exporter in the world, the United States has enjoyed a much higher rate of exports in recent years. It is difficult to imagine the two continuing to be competitive if the United States is pursuing a course of sustained prosperity.
The argument between the United States and the rest of the world at the global scale often turns on two things: first, protectionism and second, free trade. Protectionism refers to the protectionist measures that nations take against imported goods. Free trade, on the other hand, refers to the liberalization of nation-to-nation relations in the world trade debate. One commonly cited example is that of American agricultural producers seeking protection from foreign competitors by forming an import monopoly. A successful example of protectionism is the United States’ total ban on Chinese oranges, a response to the importing of Taiwanese oranges that were detrimental to the United States apple industry.
In a comprehensive review of world trade history, Huntington notes that protectionism was a major factor in the emergence of monopoly power in industrialized nations. For instance, during the period of England’s industrial revolution, there were many attempts by merchants and manufacturers to introduce restrictive measures against imports. As World War 1 erupted, protectionism became even more pronounced as Britain and France implemented price controls and rationing. These policies resulted in a severe shortage of manufactured goods in Europe and led to a flight of industry to the American New World. By the time the US entered the World War 2, many European and Asian countries had developed a similar “protectionist” strategy, and the United States was forced to adopt protectionist measures in order to secure her economic interests abroad.
By contrast, free trade theories suggest that the emergence of the middle class in the US as a result of the Industrial Revolution encouraged international investment, which in turn spurred an overall increase in international trade and world trade. The theory further suggests that the growth of the middle class generated a situation in which a global demand for cheap labor (driven by improvements in technology and urbanization) made it possible for the emergence of international trading nations. This led to the rise of the so-called trading nations, which are increasingly viewed as trade partners by the United States and her allies.
The main argument against the Paas-Deling debate is that protectionist tendencies do not favor open markets. Specifically, de la Mercadonna contends that tariffs and other protectionist measures adopted by countries such as China to protect their industries from foreign competition do not benefit the United States or any other nation. Rather, the policy harms the domestic economy of the nation through a loss of jobs and income, a decline in investment capital, and reduced foreign direct investment. Proponents argue that the existence of a trading nation protects the consumer through lower prices and a level playing field in global markets, especially with respect to technology and innovation.