Since the days of Adam Smith, many economists
have argued that free trade benefits all nations by increasing their standards of living and
wealth. Yet, there is another very important but commonly overlooked benefit of free trade,
which is its ability to promote international peace.
The Capitalist Peace Theory argues that free trade makes countries more commercially interdependent.
This interdependence gives countries a strong incentive to keep hostilities low. Think about
it: Countries that trade a lot with each other have a lot to lose if a war breaks out.
Economists also argue that free trade and bargaining is a lot more cost-effective way
of resolving international disputes and obtaining resources. War is a very costly way of going
about doing the same thing. If we look at countries that trade a lot with each other,
these are some of the countries that import many ideas from the rest of the world. So
free trade comes with not just goods that you import from other countries, but it also
comes with exchange of ideas and culture, making countries more tolerant of each other’s
differences and more understanding. Several empirical studies show that countries
that trade a lot with each other are also less likely to go to war with each other.
Yet, critics point out that World War I broke out after an increase in trade flows. However,
research shows that trade flows rose before World War I as a result of lower transportation
costs. Ships became faster and bigger, transportation costs became lower, trade increased as a result.
At the same time, however, nations like France, Germany, and Russia increased their trade
barriers. They became more isolationist and less interdependent. The result is World War
I. As if predicting this outcome, Frédéric
Bastiat once wrote, “If goods can’t cross borders, armies will.” And we see this in
the empirical evidence. The Global Peace Index measures internal and external peacefulness
and ranks countries like Ireland, New Zealand, and Netherlands as being some of the most
peaceful nations in the world. These are some of the most heavily trading nations in the
world as well. In summary, economists argue that free trade
not only makes nations more prosperous but also promotes world peace.