Donald Trump, like populists around the world, says that free trade destroys local jobs and harms economic growth. These claims are disputable, but they miss the point.
History shows that trade agreements are rarely about economics alone. They are a tool of diplomacy—a way to shore up old alliances and forge new ones. And now, perhaps, a way to avoid World War III.
Prior to the late 1800s, international trade played a relatively minor role in the global economy. Its importance grew steadily around the turn of the 19th century, in which colonialism and improved transportation brought about what’s known as the first wave of globalization.
In addition to the financial benefits, the notion that trade would also bring about a more peaceful world prevailed. “[T]here is no doubt that free trade seemed genuinely altruistic and was unconditionally supported by religious groups, the anti-slavery movement, trade unions, women’s associations, and peace campaigners,” wrote the historian Robert Comb about the mood in 19th-century Britain. “The dogma was that commercial freedom would eventually bring political freedom and international harmony, and hence the dissolution of empires.”
The march of globalization did not, however, prevent the breakout of World War I. Still, traders and financiers were among the most vocal (paywall) opponents of the war. Historians believe that nationalism and religious militarism overwhelmed the forces of commerce, and it’s probably no coincidence that the conflict began between countries that were the least economically integrated at the time.
Following Word War I, countries turned inwards, tariffs rose, and trade declined. Only in the aftermath of the next World War would trade rise again.
In 1948, the second wave of globalization was sparked by the US-led creation of the General Agreement on Tariffs and Trade (GATT), which would later morph into the World Trade Organization (WTO). The purpose of GATT was to reduce protectionism and integrate the world economy. By removing trade barriers, the US government was looking to exercise geopolitical power, not buy and sell cheaper consumer products.
“Together with military alliances, trade agreements helped bind together the major free-market democracies, their growing prosperity serving as an effective counter to the centrally planned economies of the Soviet Bloc and the People’s Republic of China,” wrote I.M. Destler, a professor of public policy.
There is strong evidence that free trade keeps the peace. Like GATT, the EU, the North American Free Trade Agreement (NAFTA), and the now-derailed Trans Pacific Partnership (TPP) were all efforts at economic diplomacy. At the heart of the EU project was the idea that Europe would become a “common market” that was so economically dependent it would be immune to war between members. NAFTA’s allure for the US was that it might stabilize Mexico as a friendly, capitalist democracy. The TPP was supported by then-president Barack Obama largely as a way to check the rising power of China.
There is strong evidence that free trade keeps the peace. Stanford economists Matthew O. Jackson and Stephen Nei examined why international conflict fell precipitously from the period 1820-1949 to 1950-2000, and concluded that international trade was likely a major contributor.
Still, the the diplomatic importance of free trade doesn’t feature all that much in the current debate about globalization. After all, it’s been a long time since the last major global conflict, and there is an entire generation that never experienced the Cold War. Today, economics loom larger than international relations.
The traditional analysis of free trade deals concludes that they have small beneficial effects on the aggregate economic welfare of large developed countries. The average consumer tends to be better off, while some workers in the industries facing new competition are worse off. However, these calculations tend not to reflect whether trade deals solidify diplomatic relations or reduce the chances of future conflict. And, really, that’s the whole point.