Another Reason Trump Should Like Free Trade
To all the reasons that President Donald Trump's antagonism toward free trade could damage U.S. interests, add another: It could endanger the country's supply of materials used in everything from computers to medical imaging.
When economists say that free trade benefits all nations involved, they typically mean that it gives consumers access to a wider range of cheaper goods and provides exporters with access to lucrative new markets. Yet there's another factor to consider, one that economists have only begun to explore: how trade alters the flow of goods around the world, and how that might affect the resilience of these global supply chains.
Increasingly, research suggests that it makes a big difference. MIT economist Daron Acemoglu and colleagues, for example, have argued that if a country's supply chain is unbalanced -- that is, too dependent on certain participants -- relatively small disruptions can more easily grow into full-blown recessions. More recently, European researchers who specialize in complex networks have found that the structure of international trade linkages can similarly have a huge influence on the stability of resource flows through the global economy.
The Europeans looked at data on 71 mineral resources -- ranging from indium to vanadium -- as they moved among 107 countries over a 12-year period, to get a sense of why prices were more volatile in some places than others. The result was surprising: For most critical minerals, the geometric positioning of a nation within the trading network appeared to matter a lot more than the country's level of political stability. In other words, it looks like the structure of the network is primarily responsible for price disruptions.
The study also identified a big advantage that the U.S. enjoys: Disruptions linked primarily to network structure accounted for only 40 percent of price volatility, compared with 70 percent for the European Union. The researchers attributed this difference to lower U.S. trade barriers -- especially for the more scarce resources -- which reduce the risk of cascading disruptions to supplies.
One other interesting point: The study suggests that nations benefit not only from their own direct trade with other nations, but also from trade going on among other countries. The U.S. supply of copper or zinc, for example, is more stable because of ongoing trade in these resources among China, Europe and other nations around the world. In this sense, everyone's trade helps everyone else.
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