The costs and benefits of international trade: Consumers have more choice.
A common argument heard in favor of international trade and globalization is that consumers get to enjoy a greater choice in goods and services.
Why would international trade bring us more choice?
The most obvious reason is that we can now access products that we were not able to before. As a result of international trade I get to enjoy more exotic products: electronics from Asia, food from Italy, Cars made in Germany etc.
On top of we will actually see an increase in the range of products available. This is slightly more complicated.
Henry Ford, the founder of the Ford Motor company, famously said of the first mass produced car that: “you can have it in any color, as long as it’s black.’
By producing the car in only one color costs are kept down and more people can afford the car. Great, but if I really wanted an orange car I would be frustrated and my life that little bit worse!
Would international trade help me get the orange car?
Short answer is: yes.
One of reasons Ford would only produce the car in back is that there would not be enough demand in one economy to justify the production of a range of colors. However, by trading internationally companies will have access to larger markets. Within that larger market there is likely to be enough people demanding orange cars to make it worthwhile Ford producing them alongside the black cars. So international customers and domestic customers can now choose between Orange and Black cars.
A more modern example would be the range of equipment on offer by Apple. If Apple was just reliant on the US market for its products then it is unlikely that US consumers alone would create enough demand to generate the economies of scale needed to support Apple’s large product range.
But, by trading internationally Apple can find enough customers for all its products. Notice over the years how apples products range has diversified as it has expanded around the globe.
So from the above we could conclude international trade leads to greater choice. I am fairly convinced, but what are the counter arguments.
One of the strongest counter arguments is that the largest companies start to dominate. The biggest firms get to enjoy the economies of scale that allow them to diversify their products. They also create stronger and stronger brand loyalty and various other barriers to entry that stop local firms competing against them. Even if local firms start competing they may just get bought up by the big firm. Therefore while choice might increase in the short run over time a few companies will come to dominate and choice will be restricted.
Another argument against the idea of greater choice is that international trade leads to cultural homogeneity. Due to trends, fashion and advertisement we all start to buy the same things all over the world. So Hollywood dominates cinema, Starbucks dominates coffee shops, and we all use Iphones. Again if you look around the world you certainly see this in action.
A way of explaining this would be too imagine a good local musician or artist, in a world without international trade she may have gained a good local following and been able to support herself through her art. But because of I-tunes, Amazon and media aggressively selling us bands and artists from major record labels most people don’t ever get to hear her because they choose to go with the safer more famous option. She doesn’t find the audience and therefore ends up being a lawyer or whatever and the world is deprived of her art.
Another argument is that while it may be true that choice has improved, is that really good for us. Is greater choice desirable? Do we really need so many variants of cars, electronics, furniture, food etc? I find this point quite interesting. I have often found myself spending far too long choosing between holiday destinations, cameras and so on. I then second guess myself; did I make the wrong decision etc. If I only had one product to choose from I would have saved myself that pain!
On the whole I think the increased choice argument is a pretty good one in support of international trade. I like being able to choose between a wide range of products, I think my life is better for it.