I am for trade. But I am not for free trade because it’s a bad idea and bad policy.
Free trade is in real trouble today. But the promoters of free trade brought this on themselves. However, it is not because they have been tepid in their defense of free trade, as the description of this debate has it. They have been guilty of far greater sins.
The first sin is hypocrisy. Free trade ideologues have enshrined the World Trade Organization (WTO) as the so-called “jewel in the crown of free trade and globalization.” Yet, the WTO promotes monopoly, not free markets, in its key agreements. The Trade Related Intellectual Property Right Agreement seeks to restrict the diffusion of knowledge and technology and reserve for giant corporations the fruits of technological innovation by significantly tightening patent rules.
Trade Related Investment Measures were meant to preserve and expand the markets of the existing automobile giants by outlawing local content policies that had enabled developing countries like Korea and Malaysia to develop their motor vehicle industries—industries which had, in turn, been central to the comprehensive industrialization of these economies.
The Agreement on Agriculture has been nothing but an instrument to pry open developing country markets to highly subsidized agricultural products from EU and the United States.
Free trade is simply a euphemism for the corporate capture of international trade.
The second sin of the free trade ideologues is that what they’ve promoted is pure ideology. They say that countries that practice free trade are the ones that have successfully developed. Wrong. In fact, whether it was Germany and the US in the 19th century, Japan and Korea in the 20th century, and China in the 21st century, protection of the domestic market, export-subsidies, domestic content requirements, investment regulations, unrestricted technological acquisition from foreign firms, currency management, and informal and formal import barriers were critical to industrial development. Yes, China’s growth was export-oriented, but let’s not kid ourselves. China did not engage in free trade but in managed trade that included a healthy dose of creative currency management and tremendous export subsidies, that are detailed in p. A8 of today’s South China Morning Post.
On the other hand, those countries that allowed themselves to be fooled or were bullied by the apostles of free trade and forgot the creative role of the state, like Mexico, the Philippines, and much of Africa bit the dust.
The third sin of the free trade ideologues is disseminating as true very questionable conclusions from bad research. There is, in fact, little or no evidence that “countries that used large tariff cuts to open their trade to the beneficial effects of globalization have seen more poverty reduction than those that have not.” Don’t take it from me. Take it from the celebrated task force of top economists co-chaired by Nobel laureate Angus Deaton from Princeton that was formed to evaluate the research on the impact of trade liberalization and globalization being conducted by the World Bank, the main institutional advocate of free trade . In a scathing review, the panel wrote: “[M]uch of this line of research appears to have such deep flaws that, at present, the results cannot be regarded as remotely reliable, much as one might want to believe the results. Evidence was “chosen selectively, without supporting argument, and empirical skepticism selectively suspended….”
Bringing up the dubious quality of World Bank research is important because most of the free trade lobby, including the WTO, has relied on it in their advocacy.
On the other hand, what does solid research reveal?
First, that greater global integration through trade has greatly increased inequality within countries and, if you take out the very exceptional case of China, increased inequality among the global population of households and individuals.
Second, that globalization has created in both the Global North and the Global South intra-country polarization between domestic regions that prosper from trade and those that are driven to greater poverty by trade.
Third, that globalization has had differential impacts on the developing world, with East Asian countries benefiting from it because of their prior protectionist policies and managed trade during the period of globalization, and Latin America, Africa, and the Middle East drawing little benefit or indeed suffering from it. It is not only regions of the US and Europe that have suffered deindustrialization from Chinese products but manufacturing industries in Mexico, Brazil, and Africa.
Fourth, free trade, by encouraging more unbridled consumption, is a key driver of increased carbon emissions and overwhelms whatever gains are made by greater energy efficiency. I am not only talking about transportation but the creation of global value chains with big carbon footprints.
Is the answer to withdraw from global trade, as the free traders have caricatured our position? No, it is to go back to a system like the General Agreements on Trade and Tariffs, which promoted trade but was flexible enough to allow countries policy space to develop and to preserve their intricate social contracts by preventing commodity dumping, environmental dumping, and social dumping.
Like the ideologues of centrally planned socialism, the ideologues of free trade ignored all this and tried to impose a one-size fits all model on everyone. They produced not the best of all possible worlds but Donald Trump.