Protectionism is in the headlines anew with the calls for the erection
of trade barriers by some Democrats in the U.S. Congress and the support
lent by Ségolène Royal and Nicolas Sarkozy – during the last
presidential election in France – to an increased tariff barrier at the
European level. If these protectionist policies are effectively
implemented, consumers will not only face higher prices of products, but
also lesser choice among varieties of products – a fact which is often
downplayed in discussions surrounding protectionism and globalization.
The traditional economic rationale against protectionism and in favor of
globalization is that economic welfare increases with the (greater)
opening of borders as heightened competition prompts domestic and
foreign producers to lower the prices of the goods they offer to
consumers.
Yet, alongside this traditional argument lies the ubiquitous, but seldom
mentioned, fact that globalization also promotes economic welfare in a
significant manner because it allows consumers to navigate among greater
varieties of goods, notably those not available from domestic producers.
For example, American consumers can buy Italian or French cheese, Irish
or Mexican beer, beyond domestic varieties of these products.
The inextricable link between globalization and variety is not a
completely modern one, though. It emerges indeed for the first time with
"the story of the quest for spice, an early model of globalization," as
Paul Freedman, author of Flavor, Fragrance, and Fashion: Spices in
the Middle Ages, argues. Much before Western Europeans launched
their age of exploration and empire in the 16th century, there already
existed a long and complex chain of market relations seeking to satisfy
the European demand for spices. For instance, as early as the 14th
century, the famous Florentine merchant Francesco Pegolotti lists no
less than 288 imported spices in his Pratica della Mercatura.
The astounding variety of, and high demand for, spices invite an
explanation. Paul Freedman discards the usual explanation, namely, that
spices were mainly demanded in order to cover the off-taste of rotting
meat. "Rather," he argues, spices were prized "because Medieval cuisine
placed a premium on a variety of flavors, which only spices could impart."
Although other factors – such as the medicinal properties of spices or
the appetite for luxuries – also played a role, it was European
consumers' demand for variety in order to satisfy the requirements of
the haute cuisine of that time that went a long way in making spices
become the first globally traded product.
The modern era of globalization mirrors and extends the historical
pattern established by the quest for spice. The dramatic expansion of
international trade during the past decades has gone hand in hand with a
proliferation in the number of imported varieties of goods. For
instance, in a paper published in the Quarterly Journal of Economics
in 2006, American economists Christian Broda and David Weinstein make a
comprehensive analysis of the composition of U. S. imports from 1972 to
2001 and conclude that there was a more than threefold increase in
imported varieties over this period. While the U.S. imported 74,667
varieties (that is, 7,731 goods from an average of 9.7 countries) in
1972, the number of imported varieties had spectacularly soared to
259,215 in 2001 (that is, 16,390 goods from an average of 15.8
countries).
What needs to be stressed, however, is that consumers value this greater
product variety for its own sake, on the top of the lower prices that
globalization also generates. Consider the example of coffee which the
United States used to import from 25 countries in 1972 and now imports
from 52 countries. When comparing varieties of coffee, American
consumers may not think that one variety is necessarily better than
others, but sometimes they would prefer one variety of coffee to others.
The possibility of buying the variety of coffee they're in the mood of
makes them better off. From the most arcane to the most mundane good,
and as the coffee example illustrates, consumers value having access to
more varieties instead of being forced into making one-size-fits-all
choices.
Yet, conventional gauges of consumer welfare, such as the consumer price
index or the import price index, slough over the value of variety to
consumers. What they measure instead is the current cost of a particular
basket of goods relative to the cost of the same basket in some base
period in the past. The economy-wide improvement in consumer welfare due
to the surge of imported varieties had thus not been evaluated before
Broda and Weinstein's study. The authors provide indeed an estimation of
the value of the expanded imported varieties to U.S. consumers between
1972 and 2001 that amounts to US $ 260 billion, that is, 3% of U.S. GDP
in 2001! These huge welfare gains stemming from increases in imported
varieties are actually three times greater than the estimates of
traditional gains from trade that are confined to lower prices of
existing goods following the dismantling of trade barriers.
During the past decades, globalization has induced a pattern of variety
growth - along the lines of the one observed above in the U.S. economy –
in almost all countries throughout the world, with corresponding
positive impacts on consumer welfare. In any assessment of the gains
from globalization and the drawbacks of protectionist policies, welfare
gains entailed by this surge in imported varieties thus need to be
stressed. "Variety is," after all, "the spice of life, that which gives
it all its flavor," as the British poet William Cowper wrote in 1785.
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