Trade makes both parties better off

Prime Minister John Key spelled out the benefits of trade in his opening address to the US-NZ Partnership Forum:

The US is New Zealand’s third-largest trading partner.

Two-way trade between our countries was worth more than NZ$7.5 billion last year.

The US is a major market for our export products, both agricultural and industrial, and a major source of imported commodities and inputs to production in NZ.

It’s also our second-largest source of foreign investment and third-largest tourism market.

And, at the same time, it’s our second-largest destination for overseas investment, and our third-most favoured destination for New Zealanders on short trips overseas.

Our economies are closely linked.

As we recover from the economic downturn, it’s vital that both of our countries support international trade, including through negotiation of free trade agreements.

With a population smaller than that of many cities in the USA we have a lot to gain from free trade but, contrary to the views of protectionists, trade benefits both partners.

Anti Dismal says:

 Economists never tier of telling people that trade makes both parties better-off, but to no avail people still see countries as competing.

But we don’t compete with other countries, this is a false analogy that comes from thinking that countries are like firms, they’re not. As, even, Paul Krugman has said, A Country Is Not a Company. The point is that Coke and Pepsi, for example, do compete, one gains at the others expense, but New Zealand and Australia, for example, don’t, their loss is not our gain. International trade is not a zero-sum game. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia “out of business”.

Why? Well in the Coke/Pepsi case, Coke gain a lot, in terms of sales and profits, from not having Pepsi to complete with and lose little since Pepsi doesn’t buy much , if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sells if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they “went out of business”, they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.

If all the energy which went into protecting economies was put into freeing them instead we’d all be better off. The Partnership forum is another small step on the way to that goal.

Free trade brings more than economic gains.

Muray McCully said in his address to the forum:

Free trade deals, either now in operation or under negotiation, provide the framework for an even greater level of engagement in trade and economic relations.

With those trading relationships, closer ties of almost every type have been created.

New Zealand now has a huge stake in the stability and security of Asia and we have tried to reflect this in our participation in the evolving architecture of the region.

The decision of the United States to join the EAS brings with it a potential for those regional bodies to play an even greater and more effective role in delivering a stable prosperous region, providing a platform for improved economic prospects for all of its partners.

Economic prosperity and political stability, what’s not to like?