How Free Trade Enables Economic Growth
News of increased tariffs and threats of trade wars have been all over the front page in recent weeks. There have been claims that the U.S. trade deficit is a problem and that narrowing it is important for GDP growth. As a company enabling international shipping, we believe in more free trade, not less.
- Consumer spending contributes so heavily to GDP growth, in fact approximately 70% of GDP is attributable to consumer spending. That’s why governments do as much as they can to ensure that consumers are confident in the economy and are eager to spend their disposable income.
- Supporters of free trade believe that when two countries engage in trade, they are already in a win-win situation because if each country wasn’t made better off by the trade, then the trade simply wouldn’t occur. Trade allows consumers to consume more than they could otherwise. In other words, trade enables increased consumer spending and therefore, GDP growth!
- When tariffs are imposed on imports, the price of those goods will rise and if the price rises enough, consumers will be discouraged from spending.
- While the tariffs may succeed in narrowing the gap in net exports the effect on overall GDP growth may be undesirable if consumer spending decreases as a result of higher prices.
- For those who fear that the money spent on foreign goods won’t benefit American consumers, there is evidence that the profits earned by foreign companies come back into the U.S. economy in the form of foreign investment. According to the Department of the Treasury, China specifically has invested more into the U.S. economy than any other nation by a large margin.
For these reasons and more, we believe that free trade should be encouraged and that a trade deficit is not entirely bad for the economy and we can achieve positive GDP growth while maintaining such a deficit. More trade ensures that consumers find competitive prices on our store shelves, are encouraged to continue purchasing and drive U.S. GDP growth.