Beyond Free Trade, Op Ed

The concept of ‘gains from trade’ is as old as economics itself and its logic embedded deeply into the operational framework of the global economy. Jones in Who’s Afraid of the WTO (2004) attempts to demonstrate that, despite the fact that there are ‘winners’ and ‘losers’ in a country when trade is liberalized, “the country as a whole tends to gain from trade (36).” Jones’s unshakable faith in free trade mechanisms to bring benefits to countries who engage in it is not all together misplaced and he makes some worthwhile observations about trade being an inevitable reality between states, with or without WTO facilitation. However, there is more to the picture than what Jones takes on. Trade liberalization as a concept has come to form part of very powerful set of economic values known broadly through the Washington Consensus, which have profoundly shaped the way international economic actors have conducted themselves in the last thirty years ­– with equally profound consequences for the countries who have adopted them. While the rapid development in China and other East Asian countries is often taken as an example attributable to export growth and the adoption of key aspects of capitalism, their assentation has been anything but prescriptive trade liberalization. In fact, contrary to the free trade logic, “most economies in East Asia did not start to liberalize imports until export growth was already well established. Taiwan and Korea [both] developed behind protective import barrier, […] generating a dynamic export sector before liberalizing imports (Oxfam; 61).”

In reality, the promotion of economic liberalization is underwritten by a complex agenda of interests. While the global economy does hold vast potential for human development, poverty reduction is not the primary function of trade liberalization as it is implemented today – despite some of the post-rationalization performed in its defense. It is, in fact, an incredibly one sided affair structured towards the retrenchment of an existing economic power balance tilted towards the Global North. Despite ardent free trade rhetoric from these countries, powerful private interests have been successful for years at keeping subsidies and import restrictions in place in key industries (such as agriculture, textiles, and steel) while strategically pressuring other countries to lift barriers to entry (Oxfam, 25).

A recalibration in this power relation is long overdue. As the Oxfam article illuminates, a deeply unbalanced trading relationship between North and South has been the status quo since the the mercantilist era. In fact, though we rarely like to admit it, Western industrialization was only possible through the extraction and exploitation of the resources of other nations, including the forced labor of its people. In today’s context, as we saw in the documentary Blood Coltan, the exploitation of both natural and human resources is still a significant problem. The integration of developing nations into the global economy is not a simply a question of ‘winners’ and losers’ but a complex process within system of imbalanced of economic and political power. The documentary serves as a reminder that the full complexity of the global economy cannot be accounted for by any model or theory, least of which, as even Jones himself argues, an anachronistic belief in Ricardian comparative advantage (36).

Thus far the United States and the European Union have both been totally unwilling to take on the true cost of free trade, as was evidence by the failure of the Doha Round of WTO negotiations. In fact, many of Jones’s arguments hinge on responding to certain WTO criticisms through reforms put forward in this Round. The cause of the failure, as it has been suggested by one prominent economics school, is that despite the fact that developing countries, “were right to say that their circumstances should give them special treatment, […] the political reality is that by offering nothing in return, they are a drag on the system (Centerpiece Autumn, 2006; 21).” This assertion is audacious, but unfortunately all to indicative of a hard truth; the fundamental intention of global trade is not the redistribution of wealth, nor economic development in the sense of poverty reduction, if it was, the Doha round would not have failed. It was a failure, because the trade liberalization agenda functions primarily to create a global economy for established multinational companies to lower their costs, expand their markets, and increase their profits (Oxfam; 6). This is not a question of not bringing anything ‘to the table’ – when 40% of the world’s population has access to only 3% of the global export market there is a bias in the system that needs to be corrected (Oxfam; 43). It is interesting to observe that, while there have been no shortage options proposed to narrow the divide between the developed and developing world, trade liberalization remains the most ‘feasible’ and regularly promoted remedy in the political toolbox. I can’t imagine why.