Post 13: Free Trade and Migration

President Trump was elected, in part, because of promises to reduce trade and migration to the United States through tariffs, secure borders, and repatriation of illegal immigrants. Meanwhile, immigration-skeptic parties have gained popularity in other developed Western nations. This post attempts look at trade and migration from the particular lens of long-term technological innovation and adoption. We will not attempt to address the broader economic and societal questions surrounding trade and migration, and will try to avoid taking sides on controversial political issues.

One can think of both international trade and migration as transfers of information between countries. As such, reducing trade and migration could negatively impact a developing country’s ability to adopt technology from more developed nations. In terms of our four factors, reducing trade and migration would likely decrease the proximity factor.

Why is international trade an exchange of information between countries? Could that same information be obtained from non-trade sources? Basically, an economic exchange is also an exchange of information. A buyer reveals whether and how much they are willing to pay for a particular good and a seller reveals how much they are willing to receive for that item. Engaging in cross border commerce reveals information about the supply and demand for goods and services in another country, and implicitly, how these products are produced and distributed. It is one thing to read about the concept behind a new technology in a book or a journal. It is another thing to experience how the concept is used in practice, as it imparts consequential knowledge in addition to academic knowledge. To achieve economic growth from technology, the new technology needs to either be produced and distributed at scale, or applied in ways that are useful elsewhere in the economy. This can be a complex endeavor and likely requires consequential knowledge and experience.

Migration functions in a similar manner. People come to a new country, learn how things work, and then bring that information when they return, visit, or communicate with people from their country of origin. By “how things work,” I mean both obtaining consequential knowledge from living and working in their new home, and also cultural knowledge. This exchange of knowledge and culture helps improve the proximity factor between countries.

So how would I characterize the impact of reducing trade and migration on technological innovation and adoption? I believe that the the primary impact is on the proximity factor, which would likely harm developing nations more than developed nations, as they have a lot more to gain from exchanges of information. If innovation is primarily driven by creative insecurity, then trade and immigration may not help developed nations innovate much, although immigration can bring talented individuals who are motivated to take advantage of opportunities that are not available in their countries of origin. In fact, the causality may be the other way round. A country in a creative insecurity situation may be more likely overlook other factors, such as wage pressures for native workers, and increase trade and immigration if they deem the benefits essential to their national security. If a country is not in a creative insecurity situation, then they may be more likely to ignore potential benefits of trade and immigration in favor of other factors. From that perspective, the US being in a creative insecurity situation during World War Two and the Cold War could explain why the US embraced globalization during those periods. Similarly, the US not currently being in a creative insecurity situation now could explain our more recent isolationism. If that is the case, I would expect the United States to continue on its current isolationist path, regardless of which political party is in power.