Global Trade Series: The Benefits of Free Trade
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Global Trade Series: The Benefits of Free Trade

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Data Highlights the Importance of Free Trade Part 1 of 3
Hinrich Part 2 of 3
Hinrich Part 3 of 3

The following content is sponsored by the Hinrich Foundation.

Free Trade Infographic

Hinrich Foundation

The Benefits of Free Trade

History has shown that trade can be a powerful engine for economic growth. Despite this, the number of protectionist policies enacted around the world has increased.

This is due to a rising tendency to view trade as a competition, rather than a cooperative endeavor. For evidence, consider the ongoing China-U.S. trade war, which has impacted everything from electronics to soybeans.

The economic costs of this dispute are well-documented. In 2019, Moody’s Analytics found that the trade war had cost America 300,000 jobs. In 2020, the Federal Reserve concluded that U.S. firms had lost $1.7 trillion in market capitalization due to the introduction of new tariffs.

In this infographic from the Hinrich Foundation—the first of a three-part series on global trade—we explain the theory behind free trade and explore a powerful dataset that disproves the rationale for protectionist policies.

Why Do We Trade?

The main reason countries trade is to specialize their production. This is when a country’s population is able to focus on what it does best. For example, consider Germany’s expertise in automobiles, or America’s leadership in tech.

These countries use their comparative advantages to generate a greater surplus than if they produced all of their needs on their own. Through exchange, they can trade their surplus output (exports) for the output of others (imports).

Imports are what facilitate the benefits of trade. These are goods that people consume without having to produce, and they can help reduce costs, catalyze greater competition, and even spark innovation.

A New Era of Deglobalization

Between 2001 and 2008, trade grew immensely. In dollar terms, it rose from $15.6 trillion to $40.7 trillion, representing a 160% increase. More importantly, as a share of global GDP, it rose from 47% to a peak of 64%.

YearTrade (Export + Import)World GDP (USD)Trade (% of GDP)
2001$15.7T$33.4T47%
2002$16.4T$34.7T47%
2003$19.1T$38.9T49%
2004$23.2T$43.9T53%
2005$26.6T$47.5T56%
2006$30.5T$51.5T59%
2007$35.4T$58.1T61%
2008$40.7T$63.7T64%
2009$32.5T$60.4T54%
2010$38.6T$66.1T58%
2011$45.6T$73.5T62%
2012$46.2T$75.2T62%
2013$47.5T$77.3T61%
2014$48.5T$79.5T61%
2015$43.2T$75.2T57%
2016$42.3T$76.4T55%
2017$46.6T$81.3T57%
2018$51.3T$86.3T59%
2019$50.5T$87.6T58%
2020$45.1T$84.7T53%

Since then, the number of protectionist trade policies has increased by 663%. This includes tariffs, which are taxes on foreign goods, and import quotas, which are limits on the amount of goods imported.

These measures appear to be having a material effect on trade. As a share of GDP, it has never returned to its 2008 high, and in 2020, it dipped an alarming five percentage points.

The Fallacy of Us Vs. Them

A growing number of governments view trade as a competition between “us” and “them”. This could be because the costs of trade are visible, while the benefits are largely unseen.

Consider a company that struggles to compete with foreign low-cost producers. It winds down its operations, resulting in job losses and an abandoned factory. These are the visible costs of trade, and when they’re covered in the media, trade is painted in a bad light.

So what exactly are the benefits? For starters, consumers benefit from the availability of cheaper goods. Not only can they buy the same things for less, they also have more money leftover for other goods and services. This extra spending will then contribute to growth in other areas of the economy.

“The benefits of trade are the resources that become available for investment in promising new firms and industries. Putting resources to better use is how we increase living standards and wealth.”
– Daniel Ikenson, Economist

To see if these benefits outweigh the costs, we analyzed U.S. economic performance from 1975 to 2019. In the vast majority of these years, GDP moved in the same direction as imports. This means that in years when imports grew, so too did GDP.

However, this doesn’t mean that an increase in imports will directly grow GDP. Rather, GDP grows when the extra spending that was freed up is allocated efficiently. The same positive relationship is seen between imports and employment—disputing the belief that imports cause a net loss in jobs. This is because imports increase when an economy expands, and an expanding economy creates more jobs.

The Case for Trade Liberalization

When it comes to free trade, domestic politics and geopolitical struggles appear to be taking the front seat. Consider the shortages of medical equipment seen in the early stages of the COVID-19 pandemic—this was partly due to harmful tariffs which disrupted the free flow of goods.

This is problematic because the most powerful benefits of trade are realized through imports. These cheaper goods give consumers greater spending power, which benefits other areas of the economy.

In the next part of the Global Trade Series sponsored by the Hinrich Foundation, we’ll explore digital trade and how it will impact the world economy.

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Operational Health Tech: A New Billion Dollar Market

Operational health tech is poised to be a multi-billion dollar industry. This graphic breaks down how its disrupting healthcare as we know it.

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Operational Health Tech: A New Billion Dollar Market

Many lessons were learned throughout the COVID-19 pandemic, but what has become most apparent is the need to invest in healthcare on all fronts. In fact in just a few short years, businesses, governments, and consumers have had to entirely reassess healthcare in ways not quite seen before.

What’s more, this elevated importance placed on health could be here to stay, and one area in particular is poised for significant growth: operational health tech.

The graphic above from our sponsor Bloom Health Partners dives into the burgeoning market that is operational health tech, and reveals the key driving forces behind it.

What is Operational Health?

To start, operational health is an industry that provides health services to employees to help keep companies running smoothly.

A critical piece of operational health is workplace health, which is expected to soar in value. From 2021 to 2025, the market for workplace health is expected to grow 200% from $6.5 billion to $19.5 billion.

The industry is undergoing a tremendous amount of innovation, specifically in relation to technological advances.

Operational Health Tech: Disrupting Healthcare

The operational health tech industry is disrupting traditional healthcare by providing direct services to employees in the workplace.

For decades now, the U.S. has increasingly become a statistical outlier for healthcare spending relative to health outcomes. For instance, the average American incurs $9,000 in healthcare spending per year, nearly twice that of OECD countries, yet life expectancy is flatlining while other countries see rises.

A worsening and increasingly expensive health dynamic makes the environment ripe for disruption and is allowing for new ideas to be brought to the table.

In addition, people are already responding to these inefficient practices by shifting greater emphasis on health within the job market. For example, studies show that workers care more about healthcare benefits over the salaries when choosing an employer.

Going forward, employees will gravitate towards employers that provide standout health benefits like workplace healthcare options offered by operational health. Here are some additional factors that act as catalysts for this space.

1. Healthcare as Smart Business

What do companies that rank as some of the best to work for have in common? First, they all tend to outperform relative to the S&P 500 on a cumulative stock performance basis. Second, many offer superior healthcare benefits.

Moreover, from 2012 to 2022, companies that were the best to work for saw shares appreciate nearly 500%, compared to around 300% for the broader market. Data like this suggests investing in healthcare and keeping employees happy is smart business that pays dividends.

2. Healthcare as a Differentiator

Since 2020, labor markets have changed dramatically. As a result, employees now have more options and are much more selective about where they work. This is evident from the difference between job openings and hires which has risen to unrecognizable levels. For example, the data shows that there are nearly 12 million job openings, but only around 6-7 million hires in 2022.

Altogether, with an oversupply of jobs relative to workers, employers will have to find new ways to differentiate. One way to stand out is through healthcare and initiatives around operational health tech.

3. The Looming Mental Health Epidemic

Today some 700 million people suffer from some form of a mental health condition and COVID-19 has continued to exacerbate the problem.

Moreover, the cost of mental health for the global economy is estimated to be a whopping $6 trillion by 2030, over double compared to the $2.5 trillion figure in 2010.

Under the umbrella of services operational health tech covers, mental health will stand to benefit. Especially in the years to come as we look for new ways to combat its mounting costs.

Investing in Operational Health Tech

Bloom Health Partners is an operational health tech company looking to revolutionize workplace health by supplying employers with data to better understand their employee base and business.

One way Bloom stands out is with Bloom Shield—its flagship cloud-based big data platform for employee health data management. With Bloom Shield, new health insights become available to make better decisions. Employers can get insight into demographic data and age trends within the workplace, pre-screening detection for cancer and diabetes, and testing for management to tackle the spread of disease.

Click here to learn more about investing in operational health tech with Bloom Health Partners.

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How Environmental Markets Advance Net Zero

The global price of carbon increased 91% in 2021. Below, we show how environmental markets are supporting a greener future.

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Environmental Markets

How Environmental Markets Advance Net Zero

In 2021, roughly 20% of global carbon emissions were covered by carbon pricing mechanisms.

Meanwhile, the global price of carbon increased 91%, bolstered by government, corporate, and investor demand. This puts traditional fuel sources at a disadvantage, instead building the investment case for renewables.

This infographic from ICE, the first in a three part series on the ESG toolkit, explores how environmental markets work and their role in the fight against climate change.

What are Environmental Markets?

First, meeting a goal of net zero carbon emissions involves limiting the use of the world’s finite carbon budget to meet a 1.5°C pathway.

Achieving net zero requires us to:

  • Change how we utilize energy and transition to less carbon-intensive fuels
  • Put a value on the conservation of nature or “natural capital” and carbon sinks, which accumulate and store carbon

Environmental markets facilitate the pathway to net zero by valuing externalities, such as placing a cost on pollution and placing a price on carbon storage. This helps balance the carbon cycle to manage the carbon budget in the most cost-effective manner.

What Is the Carbon Budget?

To keep temperatures 1.5°C above pre-industrial levels, we have just 420 gigatonnes (Gt) of CO₂ remaining in the global carbon budget. At current rates, this remaining carbon budget is projected to be consumed by 2030 if no reductions are made.

Carbon Budget1.5°C1.7°C2.0°C
Remaining GtCO₂4207701270
Consumed GtCO₂247524752475

Each scenario based on a 50% chance of success
Source: IPCC AR6 WG; Friedlingstein et al 2021; Global Carbon Budget 2021

Across three different scenarios, the above table indicates the amount of carbon emissions humanity can emit to prevent the worst effects of climate change.

What are Negative and Positive Externalities?

Second, when companies compensate for CO₂ emissions, they can fall across two categories: negative and positive externalities.

  • Negative externalities include pollution. Carbon cap and trade programs, using carbon allowances, put a cost on pollution.
  • Positive externalities include renewables, such as wind and solar power that generate carbon-free electricity. The value of renewable energy can be expressed with a renewable energy certificate.

Natural capital is another example of a positive externality, which involves the capturing and storing of carbon. The value of this type of natural capital can be expressed using a carbon credit.

Environmental Markets and the Energy Transition

Next, environmental markets can drive the transition to cleaner energy sources by ascribing a cost to pollution and putting a premium on renewables, to change how we use energy.

As one example, in 2013 the UK government introduced the Carbon Price Support mechanism to complement the emissions cap and trade program and weaken the investment case for coal. Between 2013 and 2020, Britain’s overall CO₂ emissions fell by 31%.

Here’s how coal was phased out of the UK’s energy mix, while renewable energy sources such as wind, solar, and bioenergy played a greater role.

DateCoal Gas Wind and SolarBioenergy
Q1 200031 TWh40 TWh0 TWh1 TWh
Q1 200541 TWh36 TWh1 TWh2 TWh
Q1 201031 TWh47 TWh2 TWh3 TWh
Q1 201528 TWh23 TWh13 TWh6 TWh
Q1 20203 TWh27 TWh28 TWh9 TWh

Source: Digest of UK Energy Statistics (DUKES); BP; EMBER via Our World in Data (2021)

Today, less than 5% of the UK’s electricity is coal-generated, with remaining plants expected to be decommissioned by 2024.

How Environmental Markets are Advancing Net Zero

Finally, as governments increase their commitments to net zero, carbon prices are rising towards a level that requires industries to decarbonize and meet those goals.

In fact, between 2014 and 2021, the global price of carbon has increased over sixfold.

DateGlobal Carbon Price (Year End)Annual % Change
2021$47.7891%
2020$24.9637%
2019$18.16-7%
2018$19.56102%
2017$9.6729%
2016$7.52-24%
2015$9.887%
2014$9.2432%

As indicated by the ICECRBN Global Carbon Price (CPW Weighted)
Source: ICE (Apr 2022)

As companies begin to treat their carbon footprints as liabilities, there will be increasing demand for environmental attributes, such as carbon allowances and carbon credits.

Managing Risk and Opportunity

Quoted markets like ICE Futures Exchanges and NYSE allow stakeholders to precisely value positive and negative externalities to:

  • Manage emissions cost effectively
  • Hedge climate transition risk
  • Allocate capital to facilitate the energy transition and build carbon sinks
  • Create an asset class for Natural Capital
  • Invest in assets to meet climate obligations

Everyone is exposed to climate risk which means it needs to be measured and managed.

That’s why balancing the carbon cycle will be critical to managing the world’s carbon budget. Markets are providing greater access, liquidity and opportunity in supporting net zero ambitions.

In part two of the series sponsored by ICE, we’ll look at four motivations for using ESG data.

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