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Heritage Foundation study finds countries open to international trade and investment prosper compared to countries that restrict trade – Publications – AEI

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AEI Heritage Foundation study finds countries open to international trade and investment prosper compared to countries that restrict trade   From the new Heritage Foundation study “2018 Index of Economic Freedom: Freedom to Trade Is a Key to Prosperity” (by Bryan Riley and Patrick Tyrrell and featured recently on CD here): The latest rankings of trade freedom around the world, developed by The Heritage Foundation for the forthcoming 2018 Index of Economic Freedom, demonstrate that citizens of countries that embrace free trade are better off than those in countries that do not. The data show a strong link between trade freedom and a variety of positive indicators, including economic prosperity, low poverty rates, and clean environments. A comparison of economic performance and trade scores

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Heritage Foundation study finds countries open to international trade and investment prosper compared to countries that restrict trade

 

Heritage Foundation study finds countries open to international trade and investment prosper compared to countries that restrict trade - Publications – AEI

From the new Heritage Foundation study “2018 Index of Economic Freedom: Freedom to Trade Is a Key to Prosperity” (by Bryan Riley and Patrick Tyrrell and featured recently on CD here):

The latest rankings of trade freedom around the world, developed by The Heritage Foundation for the forthcoming 2018 Index of Economic Freedom, demonstrate that citizens of countries that embrace free trade are better off than those in countries that do not. The data show a strong link between trade freedom and a variety of positive indicators, including economic prosperity, low poverty rates, and clean environments.

A comparison of economic performance and trade scores in the 2018 Index of Economic Freedom demonstrates the importance of trade freedom to prosperity and well-being. Countries with the most trade freedom have higher per capita incomes, more secure food supplies, and cleaner environments. In fact, as seen in Chart 2 (above), the top third of nations by trade freedom earn over $27,000 gross national income per capita on average, compared with the middle third’s and lowest third’s much lower amounts of $7,400, and $3,100, respectively. Moreover, nations with more trade freedom have greater political stability and are less likely to experience politically motivated violence, including terrorism.

Greater freedom to trade makes for a freer, safer, cleaner, and healthier world. The benefits of trade accrue to citizens on both sides of an international transaction because trade is not a zero-sum activity. Countries that impose significant tariffs and non-tariff barriers hurt themselves and detract from the prosperity and happiness of their citizens.

Conclusion: Economic theory suggests that countries with reduced barriers to international trade and investment will prosper compared to countries that restrict trade. The 2018 Index of Economic Freedom provides evidence that supports this idea. People who live in countries with low trade barriers are better off than those who live in countries with high trade barriers. Reducing those barriers remains a proven recipe for prosperity. Governments interested in higher economic growth, less hunger, better environmental quality, and less risk of political unrest should promote freedom, not pander to vocal minorities who want to restrict it.

MP: Thanks to Bryan Riley and Patrick Tyrrell for providing additional empirical evidence to support what should be an obvious and non-controversial economic truth, going back to Adam Smith’s The Wealth of Nations in 1776: countries that are open to international trade and investment prosper on multiple dimensions: economically, politically, environmentally and in terms of public health compared to countries that erect protectionist barriers to international trade and investment.

Update: Despite the overwhelming economic theory and evidence linking international trade and the reduction of trade barriers to greater economic growth and prosperity, the protectionist/scarcityist Trump administration seems determined to take America down a path leading in the opposite direction to greater economic impoverishment and privation that result from increased trade barriers. From today’s WSJ editorial “The Coming Aluminum War: Trump and Wilbur Ross tee up tariff brawls for the New Year“:

The Commerce Department last week announced a “dumping” investigation into Chinese aluminum imports. That’s one more sign that the Trump Administration is heading toward a major escalation in trade conflict that would hurt Americans. Dumping investigations usually start when a company petitions the government, but Tuesday’s action was self-initiated, the first such case in 25 years. Commerce Secretary Wilbur Ross told industry executives that this will accelerate the Administration’s fight against “dumped” goods. In October the Commerce Department imposed duties of 97% to 162% on Chinese-made aluminum foil.

The new Commerce investigation concerns common alloy aluminum sheet, which is crucial for industries from construction to home appliances. The U.S. uses 26 billion pounds a year, but domestic makers meet only 8% of that demand. Tariffs would raise costs for U.S. manufacturers, which would likely lose more jobs than they’d create in the aluminum industry. That’s what happened when George W. Bush raised steel tariffs in 2002.

That type of trade protectionism is a form of self-inflicted economic poison that is guaranteed to make America’s consumers, companies and workers much poorer, not greater.

Heritage Foundation study finds countries open to international trade and investment prosper compared to countries that restrict trade
Mark Perry

Mark Perry

Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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