Trade in the Balance

July 2018 - Thomas Halverson

Since the end of World War II, one of the most important economic trends in the global economy has been the explosive growth of international trade and the wealth generated by that trade for advanced and emerging economies alike.

Across most of the world, countries have steadily embraced the Ricardian theory of “comparative advantage,” focusing their energy and resources on goods and services they can produce more efficiently than others while simultaneously opening their domestic industries to competition from the outside.

The process has been gradual, uneven and hampered by inevitable geopolitical setbacks, but it has continued inexorably nonetheless. And the results have been remarkable. Today, international trade totals over $20 trillion a year and represents approximately 30 percent of global GDP, compared to only 12 percent of GDP in 1960.

Few industries have benefited more from this trend than American agriculture. The United States is uniquely well positioned to grow, process and distribute safe, reliable, high-quality food products thanks to its plentiful arable land and water, good infrastructure and the ingenuity and adaptability of U.S. farmers and ranchers. Thanks to the law of comparative advantage, the U.S. now exports approximately $140 billion of ag products every year to markets all over the world. Exports represent an estimated 20 percent of all U.S. agricultural production, making foreign markets crucial for a wide variety of individual ag sectors.

The benefits of free trade to American agriculture are arguably at greater risk today than at any time in recent memory. Escalating trade disputes with China, Mexico, Canada and other major trading partners threaten to erode the enormous progress the United States has made gaining access to foreign markets for U.S. agricultural products.

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