After WW2 the world was ravaged by conflict. Everyone was in agreement, this could not be allowed to happen again. To rebuild, humanity needed to learn how to work together. The United Nations and later the World Trade Organization were created, coupled with the ushering in of an unprecedented new era of interconnectivity and progress. However in recent times, free trade and globalisation have been on the back foot. Where there was once an overwhelming consensus throughout the world, a rising tide of nationalism and protectionism has appeared to challenge it in the last few years.
In The United States, President Donald Trump has already withdrawn from the Trans-Pacific Trade Partnership, and threatened to raise tariffs on Mexican goods. The country that was once the main driving force behind the UN and the WTO, is developing an isolationist streak. In Europe many nationalist figures have also emerged in recent years, with platforms based around a strong government with greater control over trade, industry and immigration. Marine Le Pen’s Front National are currently odds on favourites to win the French presidency, and nationalists are the leading parties in Poland and Hungary. And of course here in Britain, we in currently in the process of leaving the European Union, including withdrawal from its single market. While many of those that backed Brexit support free trade, others see it as opportunity to promote protectionist trade policies. It’s perhaps too early to call which side will end up winning this battle but regardless, support for globalisation across the world seems to be declining.
So what’s the point, why promote free trade at all? Well virtually all of us take advantage of it every day without thinking twice. Would you rather pay a reasonable price for a pint at your local pub, or spend months trying to brew the beer yourself? We can make use of companies that specialize in products we want, paying them with money we earn specializing in something else, making all parties better off overall. Without markets and trade, your standard of living would be far lower than it is now.
This is true not only between people, but between countries as well. It was Adam Smith who first said that if a foreign country can supply us with a product cheaper than it would cost to make it ourselves, it makes sense to trade with them as opposed to trying to produce everything we need at home. France for instance specialises in wine. The climate there is perfect, they have worldwide brand recognition, and their expertise means that they can produce it fairly cheaply too. Of course we can make wine here in England but let’s be honest, it’s just not the same. Putting a tariff on French wine would be good news for British vineyards, but bad news for the wine drinkers. Nobody wants to drink sub-par expensive wine, and thanks to free trade they don’t have to.
For a real world example of this, we can take a short trip across the pond. In 2009 US President Barack Obama, under pressure from the United Steelworkers union, imposed a new tariff on car and truck tyres imported from China. Over three years, the tax rose to more than 35 per cent. The result was that around 1,200 American jobs were saved, worth $48 million a year in total. However the decline in cheap tyre imports also created in rise in tyre prices. A Peterson Institute study found that across the wider economy more than 3,700 jobs were lost due to this increase, meaning that more than $1.1 billion was taken out of consumers’ pockets. Tariffs may help some sectors of the economy, but they give most of us consumers a raw deal.
Free trade has done far more good for humanity than any other economic system. Since 1947 and the beginning of the Washington consensus in the 1980s, global GBP has skyrocketed, and absolute poverty around the world has been decimated. In the three decades between 1981 and 2010 alone, the rate of extreme poverty in the developing world (those living on less than £1 per day) has gone down from over 1 in 2 citizens, to 1 in 5. This reduction represents the single greatest decrease in poverty in human history, an amazing achievement that we should be proud of. Of course advances in medicine, improved education, and the fantastic work of aid organisations to name just a few factors, have all had an impact. But the role trade has played in achieving this has been hugely important.
Trade liberalization creates demand that causes businesses to hire more employees, which in turn means more workers are able to feed their families. Asia in particular has hugely benefited from this over the last few decades. In China alone, hundreds of millions of people have been lifted out of poverty as a result of the shift from communism to a free trade based market economy. Globalization allows those in developing countries to access foreign markets and innovations. Some of the poorest countries in the world now have access to cars, mobile phones, and renewable energy, all of which would have been unthinkable a few decades ago. Markets provide everyone with the opportunity to raise their living standards, and improve the quality of their lives.
As the great Swedish statistician Hans Rosling puts it,
To get away from poverty, you need several things at the same time: school, health, and infrastructure – those are the public investments. And on the other side, you need market opportunities, information, employment, and human rights
Sadly Hans passed away on the 7th of February 2017. But his relentless commitment to global development, and optimistic way of looking at the world will live on.
Despite everything that free trade has allowed us to achieve, there is still a widespread perception that the game is rigged, and that the global economic system simply doesn’t work for the average person. It’s often said that the gains from free trade have been pocketed by “the 1%” at the top, while 99% of people have benefitted very little from it. Indeed there is an element truth to this. Economic growth in Europe and North America has stalled, and many previously booming industrial heartlands are now struggling. Many have reacted to this by saying that the solution is to turn back the clock and stop the relentless drive towards freer trade and freer markets, and politicians of various stripes have used this feeling to push their own agendas. , but to abandon everything free trade has allowed us to achieve would be a huge mistake.
The well-established consensus based around free trade and globalisation is currently facing its biggest challenge yet. Many simply feel that the benefits of globalization haven’t reached them, and that cannot be ignored. But despite the downsides, free trade also brings with it huge opportunities. A more interconnected world means jobs that put food on the table. It means economic growth and innovation. And it means working together for the good of humanity to deal with the shared challenges that we face. If you want to make everybody better off, particularly the poorest people in the world, then you should join me in advocating for more free trade.
Featured Image – Flickr: Billie Greenwood
